Seek clarity from govt on applicability of GAAR: Experts

The government clarifying that the new provision of General Anti-Avoidance Rules (GAAR) will not target participatory notes (P-Notes) soothed minds of nervous traders. The Finance Ministry stated P-notes will be treated as the separate asset class and that they need to be tested for abnormality, misuse and abuse.

Participatory Notes are offshore derivates instruments which allowing overseas investors exposure in the Indian stock market. All overseas investors are not allowed to directly trade in Indian stock market. Global investors and SEBI had engaged in a conference call in which feedback was taken on what kind of changes have been sought by global investors to remove the confusion surrounding GAAR. Commenting on the issue, Siddharth Shah of Nishith Desai & Associates feels that the Finance Minister has not made clarifications on the confusion surrounding the General Anti-Avoidance Rules (GAAR) provisions. According to him, indemnity certificates are not a practical solution to the issue, given the current scheme of uncertainty. Meanwhile, Aliff Fazelbhoy of ALMT Legal seeks clarity from the government on the applicability of GAAR. Fazelbhoy is of the opinion that retrospective amendment from 1962 totally defies logic. In his view, shift from Mauritius to Singapore itself could be taxed. Fazelbhoy urges the Finance Minister to hold GAAR for the moment and introduce DTC. Below is an edited transcript of their interview with Udayan Mukherjee and Mitali Mukherjee. Also watch the accompanying videos. Q: What was the message from the global investors? Did the regulator seem like it was in an assuring mode that many of those concerns would be taken on board and addressed? Shah: I did not get the opportunity to participate on the call or get a first hand review of it. But I have heard that it was essentially SEBI giving a patient hearing to the offshore derivative instruments (ODI) issue and issues related to GAAR strictly falling outside the preview of SEBI, there is very little that one can expect from SEBI on this count, to be honest. But overall, the hope and confusion both continue to coexist in the market. With the noise and the representation being made and the market reaction, the fact that SEBI is now also looking to give a patient hearing seems to give some hope to the players that the finance minister is willing to remove some amount of uncertainty that exists in respect of ODI holders. The statement made in terms of the double taxation risk, which seem to be coming out from the clarification is that they do not really look at ODIs being subjected to any extent on a double tax both at the holder level as well as at the issuer level. So that