Cancer International Finance

8/3/2019 Cancer International Finance

1/26

International Finance Presentation

Group- Cancer1.Surya Narayana Adiga - 13048

2.Vrishti Garg - 13054

3.Aniruddha Das Gupta - 13062

4.Anjali Meena 13063


2/26

Questions to be answered

Why Mauritius is importantchannel for investments ?

What other such centres areavailable for investments?

How are the investments

routed through Mauritius?

Tuesday, January 31,2012 2


3/26

Mauritius as an importantcenter for investments


4/26

Offshore Financial Center(OFC)

Usually a small, low-tax jurisdiction specializing inproviding corporate and commercial services to non-resident offshore companies, and for the investment of

offshore funds. OFCs must provide some or all of the following services,

low or zero taxation

moderate or light financial regulation

banking anonymity.

Tuesday, January 31, 2012 4


5/26

OFCs examples: According to IMF, the official OFCs are as follows:

Macau

Bahamas

Bahrain British Virgin Islands

Cayman Islands

Mauritius

Hong Kong

Singapore

Thailand etc



6/26

Double Taxation Avoidance Agreement(DTAA)

India has comprehensive Double Taxation AvoidanceAgreements (DTAA ) with 79 countries.

The Central Government enters into DTATs with other

countries to encourage flow of foreign capital andtechnology.

The main purpose of any DTAA is mitigating thehardship caused by dual taxation on the same source ofincome.

Double taxation on single source earned by a person ispossible under income-tax, as taxation depends not oncitizenship, but on residential status.



7/26

Mauritius as Tax Haven

The DTAT with Mauritius was signed in August1982

The treaty specified that capital gains made onthe sale of shares of Indian companies by

investors resident in Mauritius would be taxedonly in Mauritius and not in India.

For 10 years the treaty existed only on papersince FIIs were not allowed to invest in Indianstock markets. That changed in 1992 when FIIswere allowed into India.



8/26

The same year, Mauritius passed the OffshoreBusiness Activities Act which allowed foreigncompanies to register in the island nation forinvesting abroad.

The benefits were

total exemption from capitalgains tax,

quick incorporation (a company isformed in Mauritius within two weeks),

total business secrecy

completely convertible currency



9/26

According to the tax treaty between India

and Mauritius, capital gains arising fromthe sale of shares are taxable in thecountry of residence of the shareholder

and not in the country of residence of thecompany whose shares have been sold.Therefore, a company resident inMauritius selling shares of an Indian

company will not pay tax in India. Sincethere is no capital gains tax in Mauritius,the gain will escape tax altogether.



10/26

India gets 43% FDI through Mauritius

route

Of the total $81 bn FDI that has come into India sinceApril 2000, $35.18 bn was routed through the Mauritiusroute, according to the Department of Industrial Policy &Promotion

Indian companies take advantage of tax arbitrage andhence register themselves in Mauritius

Effective corporate tax in Mauritius is less than 3%.


India gets close to 50% FII through Mauritius.


11/26

Other Centers for such Investments



12/26


FY 2009-2010 FY 2010-11 FY 2011-12(Apr-

Nov)

Singapore 3798.49 3980.19 1522.95

Mauritius 2148.38 5045.83 1703.29

Netherlands 1529.90 1516.63 616.55

US 870.35 1206.98 606.94

British VirginIslands

747.49 281.06 344.98

UAE 637.47 839.86 238

Cyprus 458.35 517.25 NA

UK 344.95 402.45 219.72

Cayman Islands NA 439.31 98.14

Channel Islands 515.57 NA NA

Figures in $ million;source:Finance Ministry


13/26

How are investments routed throughMauritius?



14/26

For instance, a company from the UK may desire to

invest in India. It may initiate, conduct and conclude all negotiations and

agreements from the UK.

But before the actual investment, it may purchase ashell company in a tax haven, say, Mauritius, and routeits investment through that Mauritian company.

Since technically or artificially the investment is madefrom out of a Mauritian company, it may seek to claimthe Indo-Mauritian DTAA rather than the Indo-UK DTAA

and, as such, would capitalize on the tax-effectiveness ofthe former treaty.



15/26

INDIA Re-examining Tax SopsClause With Mauritius

CURRENT SITUATION



16/26

Should the Mauritian tax treaty be

revoked?

In 2000 the Income-Tax authority had filed cases againsta number of FIIs on the ground that their sole purpose ofexistence was to evade tax.

CBDT issued a circular that a certificate of residenceissued by the Mauritius should suffice to establish theresidential status in Mauritius and the applicability of thedouble-tax agreement.


17/26

Tax Residency Certificate(TRC)

It is considered to be proof that an investor is a residentof Mauritius and thus entitled not to pay capital gains taxunder the Indo- Mauritius tax treaty.

The Mauritian government had tried to placate India by

tightening issuances of certificates of residence andissuing it one year at a time.

It has also tightened the issuance of license applications

for collective investment schemes.

But these measures are viewed as too little by the IndianGovernment



18/26

What is Indian Govt. take on TRC?

The govt is mulling plans to scrap TRC in force sinceApril 2000.

A final decision will be taken only after widerconsultations as such a move could increase uncertaintyand hurt FDI and FII flows in a gloomy economic

environment. India has been pushing for a review of the Indo-Mauritius

tax treaty to curb treaty shopping, a practice by whichresidents of a third country take advantage of a

beneficial tax treaty between two countries to lower theirtax liability.

They plan to include a limitation of benefit clause in thetreaty to enable only genuine residents to enjoy the taxbenefits.



19/26

Indian Governments Concern

Indian Government is losing revenue since users of thisroute are evading tax that should have flowed into theGovernment's coffers.

This argument is, however, open to debate since,internationally, treaty shopping in which a third companyuses DTAA between two other countries to avoid tax is awidely accepted form of tax planning.



20/26

Again, double-tax avoidance treaties are signed to avoidprofits from the same source being taxed twice. Sincethe capital gains tax in Mauritius is zero, investors areevading tax.

If it charged a low rate of CGT, India would still not havemade any money since the revenue in that case wouldhave gone to the Mauritian government.



21/26

Steps Taken

SEBI has brought in various rules to tighten KYC normsfor issuing P-notes, for registering sub-accounts and hasimproved disclosures made by FIIs.

The move last year asking all FIIs to broad-base or havea minimum number of shareholders and disallowingmulti-layered structures led to many FIIs and sub-accounts moving out of India altogether.



22/26

The noise being made by the Indian Government againstmoney-laundering is not going unheeded and the threatof regulatory action seems to have made new investorswary of using the Mauritius route.

Experts opine that incremental FII flows into equitymarkets are more from other jurisdictions such asSingapore, Dubai, Luxembourg and so on. FDI flows

from Mauritius have also been declining of late.



23/26

Reasons why scrapping the treaty is notnecessary

The Singapore alternative that the Indian Governmenthas provided to overseas investors by amending theDTAA with that country in 2005 could prove to be aserious competitor to Mauritius in the years ahead.

Indian Government has made Singapore waive capitalgains tax of its residents on sale of equity in India. Sincemany FIIs are already head-quartered in Singapore, theycan easily channel their funds from there.

W

hat is more important is that the DTAA with Singaporeincludes clauses that prevent misuse.



24/26

The final reason why scrapping of Indo-Mauritius taxtreaty is unnecessary is because the Direct Taxes Codethat will come into effect from April 2012 has a modifiedGAAR (general anti-avoidance rule)

It lays down that income-tax officers can determine thetax consequence for the assessee by disregarding anyarrangement (such as DTAA).

This is a powerful tool which can be wielded wherever

necessary.

Tuesday, January 31,2012

24


25/26

Case Study


26/26

Vodafone Tax Dispute Vodafone purchased Hutichsons stake in its mobile

telephony joint venture in India with Essar in a $11.2 bndeal in May 2007.

The deal was done through a holding companyregistered in the Cayman Islands.

Government officials taxed Vodafone an amount of $2.4billion on account of this deal.

Vodafone had moved the apex court challenging theBombay High Court judgement of September 2010

which had held that Indian IT department had jurisdictionover the deal.

However Supreme Court ruled that Indian Governmentcannot tax Vodafone as it was an overseas deal.

Tuesday, January 31,2012

26

Cancer International Finance

Documents