Government goes easy on foreign investors.

NEW DELHI: There is more good news for nervous foreign investors routing their funds through countries with which India has double tax avoidance treaties.

Even as the committee under Parthasarthy Shome finalizes its report, the tax department has issued a rather benign set of rules that will cool the nerves of overseas investors who were worried over the tax residency certificate that they will have to produce from April.

The certificate was proposed by Pranab Mukherjee in the last budget for countries that avail of DTAA benefits. The move was aimed at ensuring that only companies with a genuine presence take advantage of the tax treaties and do not route funds through tax havens. In fact, some countries, such as Mauritius, which accounts for a majority of foreign inflows into India had even expressed reservations during their discussions with Indian authorities. Currently, India has 84 DTAAs with various countries.

"The rules are pretty simple and should not raise concerns for foreign investors," Rahul Garg, head of direct tax practice at PricewaterhouseCoopers said. "It is noticed that in many instances, the taxpayers who are not tax residents of a contracting country do claim benefit under the DTAA entered into by the government with that country. Thereby, even third party residents claim unintended treaty benefits," the government had said in the memorandum to the 2012-13 Budget.

Mukherjee had later said that the government wanted to ensure that an assessee paid tax at least in one of the jurisdictions to avoid a situation where companies went away without paying any tax. Under the norms, foreign investors will need to get the certificates from authorities in other countries. The certificate has to merely give the name of the assessee, its status as an individual or a company, its nationality and country where it is registered or incorporated.

Besides, the TRC should also have the tax identification number of the assessee, its residential status for the purposes of tax, period for which the TRC is applicable and address of the assessee during that period, the government said in a notification. The TRC, along with the general anti-avoidance rules and the move to levy tax retrospectively on transactions such as the Vodafone-Hutch deal had hit investor sentiment, prompting the government to put the decisions on hold.


Source : timesofindia.indiatimes.com