Mar 02, 2013, 01.18 PM IST
Mukesh Butani of BMR Advisors believes the Finance Ministry’s clarification on the tax residency certificates (TRC) have helped drive away investors' fears.
Mukesh Butani of BMR Advisors believes the Finance Ministry's clarification on the tax residency certificates (TRC) have helped drive away investors' fears.
The Finance Ministry today clarified Finance Minister, P Chidambaram's comments on tax residency certificates (TRC) made in the Parliament while announcing the Union Budget 2013-14. The ministry clarified that the resident of contracting state will be entitled to DTAA (double taxation avoidance agreements) benefit. It also said that there is no intention of the income tax officials to question TRC holders.
Bhutani believes the Fin Min has very clearly laid down the fact that the revenue authorities cannot question the credibility of TRC that has been granted by a foreign jurisdiction.
Below is the edited transcript of Bhutani's interview to CNBC-TV18.
Q: The Finance Ministry has clarified that it is not going to rock the boat. Are you feeling that the concerns that investors had has been allied by this clarification?
A: I think so, because this is not what was intended and it was better to wait for the clarifications given the fact that the market is extremely sensitive to this news.
Now this clarification says two to three things. Firstly, the circular governing the Mauritius-India treaty stands. Secondly, it also states that now it is left between Mauritius and India to renegotiate the treaty. This means that there is nothing in the domestic law atleast until General Anti Avoidance Rule (GAAR) is implemented from April 01, 2016. Also, the revenue authorities cannot question the credibility of tax residency certificates (TRC) that has been granted by the foreign jurisdiction.
This clarification also means the validity of TRC in the context of countries with which India has double tax treaties and the validity of TRC in particular in the context of Mauritius read with that the CBDT circular.
The concern that people had and the reason the market reacted yesterday is a question that everybody had- is this way to override the CBDT circular or is this a way to bring about a domestic legislation and a limited applicability of GAAR in so far as treaty provisions are concerned. This has been answered in a very clear manner and this should address all the concerns specific to this particular clause in the Finance Bill, that a TRC is required but it is not an absolute requirement.
Q: One of the points that came through yesterday and this was the attempt or the interpretation that some of us had post the press conference yesterday by the finance minister and his entire team. A distinction is sought to be made between beneficial ownership and agents who maybe exercising it. That is perhaps still an overhang in the air. Is that a concern?
A: See, the concept of beneficial ownership is a standard concept which prevails in all the treaties. So, if you read the treaty and if a particular treaty has a limitation of benefits clause, that limitation merely confers the benefit to the person who benefits and not to the person who is a legal owner.
India and Mauritius treaty do not have a limitation of benefit clause. That is what India is pursuing with Mauritius and with other countries that we need to have an limitation-on-benefits (LOB). In absence of an LOB, what constitutes beneficial ownership becomes an important issue. So, if you bring about some kind of a beneficial ownership concept under the domestic law, it in a way tends to shake up the foundation of the treaty and that is what the concern that people had. We need to understand this in the context of an amendment to the domestic law. It needs to be read with the circular which continues to be valid and read with the Mauritius India treaty which stands on its own footing until the time it is amended, one.
Also, let's assume that there is a particular investment or a source of money that needs to be traced and which is questionable. Then what kind of empowerment should the tax administration have to be able to question the source of that income which partly can be achieved through tax information agreement and partly through some changes in the domestic law, which is what the government was intending to do.
Nifty decline continues but comes near 6220 support. A relief rally is possible. Short term trend may turn sideways
A sharp decline in the Nifty today, brought the index very close to a support zone from 6200 to 6220. We may find the Market holding on to support, at least for a short period of time.
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