Business Daily from THE HINDU group of publications
Monday, Jun 30, 2008
ePaper | Mobile/PDA Version | Audio
Business Daily from THE HINDU group of publications Monday, Jun 30, 2008 ePaper | Mobile/PDA Version | Audio |
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Mentor
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Economic Offences Columns - Sticklish Issues Mauritius route
Tax treaties are concluded between two countries to avoid double taxation. Such treaties remove the disincentive for traders and investors, and prevent tax avoidance and evasion. Different countries have taken steps to prevent improper use or even misuse of tax treaty provisions, by including specific clauses. India too has taken such steps. In spite of such provisions and safeguards, taxpayers can misuse the provisions. They can use foreign banks and entities in tax-friendly countries to conceal income, which may complicate tax administration and tax collection. Re-routing of funds as alleged by the former Chief Minister of Tamil Nadu, Ms Jayalalithaa, also cannot be fully ruled out. As Mauritius-based FIIs are exempt from payment of tax on capital gains in India on the money received from sale of shares, it is possible that FIIs can route their investments through Mauritius through a shell company formed with the sole intention of routing investments to India, with no real or bona fide operation. Even the Finance Minister had on an earlier occasion spoken regarding misuse of the Mauritius treaty and unfair advantage derived by some entities. India and Mauritius have on earlier occasions even discussed the issue with the intention of exploring ways of strengthening the mechanism for exchange of tax and fiscal information, apart from inserting appropriate provisions in the double taxation avoidance convention. It is also possible that some foreign investors can conceal their real identity in the process of using Participatory Notes (PNs) issued by FIIs. The existing loopholes must be identified and rectified at the earliest. Dr K. K. Ammannaya, Udupi The former chief minister of Tamil Nadu, Ms Jayalalithaa, is right in seeking the list of people who took advantage of the tax benefit offered to Indians in Mauritius, since people have a tendency to misuse such provisions. The loss to the exchequer could be substantial. The Government should not hesitate in providing the information. T. R. Anandan, Coimbatore
Foreign investors can hide their identity through investing in Participatory Notes (PNs). The Securities and Exchange Board of India (SEBI) had asked FIIs to disclose identities of holders of these notes. The authorities should ensure that slush funds from India and terrorists abroad do not enter the Indian markets through PNs or the Mauritius route. Dirty money should not find its way into the country. Manipulation of stock markets by terrorist outfits for raising funds should be dealt with seriously. Funding terrorist activities in the country should be strictly prohibited. Re-routing of funds from Mauritius, taking advantage of the concessions under the DTAA treaty, should be tackled by SEBI firmly and it should be fully equipped to prevent market manipulation. T.V. Jayaprakash, Palakkad Mauritius does not tax capital gains. The Mauritius-based FIIs are exempt from paying capital gains tax in India — both short term and long term — on income from sale of shares. The FIIs routing their investments from other destinations have to pay 10 per cent short-term capital gains tax. This practice results in revenue loss to India. While Indian investors are asked to provide all the details, foreign investors conceal their identity. The Government should be careful about tax treaties and there should be no room for misuse of tax by anybody. Venkatraman Ramjee, e-mail More Stories on : Economic Offences | Taxation | Sticklish Issues
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