FIPB no to treaty shopping clamp on FDI

NEW DELHI: Fears about treaty shopping ��� cited frequently by the revenue department in the finance ministry to block foreign direct investment (FDI) proposals ��� have been set aside by the Foreign Investment Promotion Board (FIPB) once and for all. The board has said that FDI should not stop due to generic apprehension about treaty shopping, especially in the case of countries like Mauritius with whom India has a double taxation avoidance agreement (DTAA).
The move is significant since $12 billion FII money has left the Indian markets following the global financial sector meltdown. Moreover, Mauritius is the single-largest source of FDI for India.

The FIPB observation was made in response to repeated objections from the revenue department to oppose proposals where FDI was routed through Mauritius or other tax havens such as Cyprus, highly-placed government officials said. The revenue department���s view has been overruled in these cases and the board has cleared the proposals, the sources said on condition of anonymity.

The department, however, is free to investigate such cases from the tax angle. Department officials are of the view that companies try to dodge tax liabilities by routing their investments through Mauritius.

The board, on the other hand, is of the view that India has a valid treaty with Mauritius to avoid double taxation. Therefore, the board took a conscious decision to overrule the generic objection raised in several cases.

Interestingly, the FIPB view has the backing of officials from the department of economic affairs which is also a part of the finance ministry, just like the revenue department. FIPB also functions under the finance ministry.

At a meeting late last month , FIPB cleared 10 proposals despite objections raised by the department of revenue on grounds of treaty shopping. At an earlier meeting in early September too, the board overruled such objections in five cases.

The proposals cleared by FIPB despite treaty shopping objection include a plea by SpiceJet for issuing warrants to Mauritius-based GS Partners. Adani Power, Essel Shyam Telecom, Meka Infrastructure and Turtorvista Global are the other proposals that got the board���s green light despite the revenue department���s opposition.