Deferral to 2016 is welcome, but GAAR still needs clarity

On the lines of committee recommendations, the finance minister’s statement provides that GAAR will not apply to such FIIs that choose not to take any benefit under a tax treaty. By implication, this means that where an FII chooses to apply a tax treaty like, say, the Mauritius or Singapore tax treaty, GAAR could be applied to examine eligibility to benefits under such treaties.

The Shome committee has recommended that whether an FII chooses or does not choose to take a treaty benefit, GAAR provisions should not be invoked in the case of a non-resident who has invested, directly or indirectly, in the FII, including holders of P-notes issued by the FII.

In this regard, the FM’s statement indeed provides that GAAR will also not apply to non-resident investors in FIIs. Possibly, there is no intention to tax P-notes. The Shome committee recommended that gains in the nature of either capital gains or even business income arising from a transfer of equity shares or units of equity-oriented mutual funds, which are subject to securities transaction tax (STT), should be exempt for both residents and non-residents.

Alternatively, until the abolition of tax on listed securities, the government should respect tax residency certificates (TRC) issued by the Mauritius authorities and refrain from taxing gains generated by Mauritian tax residents if a valid TRC is furnished in terms of circular 789 of 2000. Effectively, the committee recommended that where circular 789 is applicable, GAAR provisions shall not apply to examine the genuineness of the

... contd.