No Benefits If Tax Haven Route Not Justified: Madras HC : 22-12-2020

Mumbai: In a judgement that would have an effect on a number of international corporations making an investment in India via subsidiaries or funding palms registered in different international locations, the Madras Prime Courtroom has dominated that tax advantages may also be withdrawn if the funding is simply completed to avoid home tax rules. The order would make stronger the tax division’s declare that any funding coming from outdoor may well be investigated in line with its intent. And if the intent was once to flee tax, advantages may also be denied underneath tax treaties.

India has entered into tax treaties with many nations reminiscent of Mauritius and Singapore that widely set the bottom laws round tax charges and who has the primary proper to levy taxes. The judgment would imply that the tax division would scrutinise the intent of buyers together with international portfolio buyers (FPI), trade trackers mentioned. As according to the ruling, an organization had arrange subsidiaries in Cayman Islands and Mauritius and transferred stocks in the ones. The court docket seen that the aim of constructing subsidiaries in those jurisdictions was once to flee tax.

The Madras Prime Courtroom dominated that switch of stocks through an organization to its step down subsidiary can’t be categorized as avalid reward and isn’t eligible for tax exemption. The court docket seen that the incorporation of the corporate in Mauritius and Cayman Island simply prior to the switch of stocks is a way to keep away from home tax. The court docket additionally mentioned that the transaction was once designed to keep away from source of revenue tax.

“What this judgment presentations is that the earnings division can strike down or disallow any advantages accepted underneath the Source of revenue Tax Act or tax treaties if the constructions shouldn’t have substance. The the most important factor is that nowhere has the court docket used or based totally the ruling on GAAR (Normal Anti Avoidance Rule) however the interpretation appears to be identical. Tax get advantages was once denied in line with the overall regulation of switch of homes act,” mentioned Paras Savla, spouse, KPB & Pals, a tax advisory.

Source : Times of India