23 FDI proposals deferred for possible tax treaty abuse

Getting tough with investment proposals from tax heavens, FIPB has deferred 23 applications in its last three meetings apprehending "treaty abuse".
According to sources, the Department of Revenue has expressed doubt that a few foreign companies were evading tax by routing their investments through tax heaven countries with whom India has signed Double Taxation Avoidance Agreement (DTAA).
The Foreign Investment Promotion Board (FIPB), they said, is keen that guidelines should be prepared to deal with such investment proposals.
In the last three meetings of FIPB, decisions on 23 proposals were deferred due to objections raised by the Department of Revenue on the issue of treaty abuse.

In the last six months, four proposals from the Netherlands were held up as the beneficial owner was not the resident of that country. Similar concerns have been raised with regard to investment proposals from countries like Mauritius and Cyprus.
India has signed DTAA with several countries including Mauritius which provides certain tax concessions to residents of the island country.

At present, Mauritius accounts for 35 per cent of the total foreign direct investment (FDI) received by India during April 2000 and November 2014.
If FDI inflows from other tax heavens like Cyprus and the Netherlands are included, the overall proportion of inflow from such counties comes to 45 per cent.

According to sources, foreign investors are taking advantage of DTAA with these nations and are indulging in "treaty abuse" by routing their investments from these countries.
However, the commerce and industry ministry is against any kind of restriction and tightening up of norms as it would hurt foreign investments.
"India is receiving good amount of FDI from these nations. Any strong step would hinder foreign inflows from these countries," another source said.
India has attracted USD 13.66 billion FDI from the Netherlands, or 6 per cent of the total FDI during April 2000 and November 2014. Similarly, the country has received USD 7.91 billion, USD 1.02 billion and USD 820.53 million inflows from Cyprus, Cayman Island and British Virginia respectively.

For about 90 per cent of the sectors, FDI is through automatic route. It means a large proportion of the FDI coming from these nations are under automatic route.
During April-November period of this fiscal, FDI in India grew by 22 per cent to USD 18.88 billion.