Investors in FIIs should not be taxed: Shome Panel

Moneycontrol Bureau

The Expert Committee on General Anti-Avoidance Rule (GAAR) headed by Parathasarthi Shome has recommended that overseas investors who directly or indirectly hold stakes foreign institutional investors, should be exempt from the provisions of GAAR.

The draft guidelines on GAAR had proposed that when an FII chooses to take the benefit of a tax treaty, GAAR provisions may be invoked in the case of the FII, but not for unit holders invested in the scheme.

The Shome Committeee report said some stakeholders had pointed out that the guideline was ambiguous about investors which had a direct or indirect stake in the FII.
 
"As the FII structure is generally multi-layered and may be a synthetic investment structure, an investor may exist at subsequent / upper levels, and may not be a direct investor in the FII. It was also stated that some FII's are allowed to invest in unlisted securities with prior permission. Clarification was sought by stakeholders if the intention of the guidelines was to cover those cases as well," the report said about the concern raised.

So the Committee has recommended that:
"Whether an FII chooses or does not chose to take a treaty benefit, GAAR provisions would not be invoked in the case of a non-resident who has invested, directly or indirectly, in the FII i.e. where the investment of the non-resident has underlying assets as investments made by the FII in India. However, this exemption to a non-resident shall be available only in respect of listed securities made by the FII in India."