Several MNCs Under I-T Scanner for Deals via Mauritius Entities

After private equity and fund houses, the taxman has raised the spectra of capital gains and judicial General Anti Avoidance Rules (GAAR) over several multinationals that had invested in India or sold part of their assets through Mauritius entities between 2013 and 2016.

The tax department has reopened assessments of many multinationals, into business ranging from FMCG to IT, over investments made in India through their jurisdictions and returns sent back to holdings companies after a sale, people with direct knowledge of the matter said.

While the tax department has merely reopened the case and sought documents from the multinationals and funds, the fear is that the taxman could trigger judicial GAAR.

India brought in GAAR regulation in April 2017, which is referred to as legislative GAAR by tax experts. However, the tax department doesn’t really need to specifically trigger GAAR per se.

Judicial GAAR refers to principles that are not codified in legislation but are a result of judicial precedents.

“Recent examination of the Mauritius treaty protection claimed by taxpayers requires them to demonstrate the commercial reasons for the set-up in that jurisdiction and its ongoing substance.

This has arisen in the past for capital gains on transfers of equity shares acquired before April 2017, and is also relevant going forward for any treaty protection claimed in respect of dividends or interest,” said Sanjay Tulia, partner, Price Waterhouse & Co LLP.

Until 2018, most foreign direct investments (FDI) was channeled through entities registered in Mauritius, Singapore or Cyprus.

“These structures were used to lower taxes, and in most cases, these companies only existed on paper.

But that was how it was done then, and no one wishes to continue that now,” a senior tax lawyer, advising a client on the matter, told ET. S-ET

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