Round-tripped FDI from tax havens under OECD review

Font Size

Print

Feedback

Email

Discuss

Related Articles

Eyeing FDI, US to woo India IncGovt may hike FDI in DTH TV to 74 pct: OfficialIFC, Goldman FDI proposals approvedFDI inflow triples in FY'08: NCAER

New Delhi: Days after G-20 nations agreed to crack down on tax havens where nearly $11 trillion is parked, the Organisation of Economic Cooperation and Development (OECD) has begun a review of India’s foreign direct investment (FDI) policy to suggest measures that will ease sector-specific ceilings as well as look into issues of round tripping.

The first-of-its-kind review—OECD Investment Policy Review of India—is expected to propose measures to make the FDI policy more open and transparent, methods to improve data maintenance, clauses on ‘security’, and also look into the dependence on investment that is round-tripped from tax havens.

Round tripping is a common system of tax evasion where an investor using the tax holiday advantage in Mauritius or some other country—with which India has a double taxation avoidance agreement—to take money out of India only to bring it back disguised as foreign investment.

The money is routed through firms set up in these tax havens. Tax havens such as Mauritius (43%) and Cyprus (3%) account for almost half of the total FDI equity flows into the country. The country’s revenue department has been monitoring the capital flow from these two countries and have routinely objected to FDI proposals from there on fears of tax evasion.

Last week, the OECD had also come out with a list of countries that act as tax havens including Mauritius, Cyprus, Switzerland, Luxembourg, Liechtenstein, Austria, Belgium, Chile, Brunei, Guatemala, Singapore, Cayman Islands, Bermuda, Netherlands, Liberia, Bahrain and Bahamas.

The study is significant as it comes at a time when the global financial crisis has slowed down foreign investment into the country. Although India is not bound to implement the measures the OECD review suggests, it is hoping to use it as an image-building exercise in order to attract more foreign capital in the coming years, commerce officials said.

“This will be the first OECD Investment Policy Review of India, so there is no previous review to compare it with; the approach of the investment policy review will be wholly consistent with that adopted in the OECD Economic Survey of India, which focused to some extent on FDI inflows. The report will be published by November or December 2009,” Spencer Wilson, media relations manager (public affairs & communications directorate) of OECD, said in response to an e-mail sent by FE .