Two US-based mutual funds and one European hedge fund have reportedly sought advice on the subject.
At least 30 foreign portfolio investors (FPIs) are looking to restructure themselves as corporates, according to a report by The Economic Times.
FPIs want to turn themselves into corporates from trusts and association of persons (AOPs) after the budget raised the surcharge on the super-rich, the report said.
“We have been receiving several queries from FPIs, asking if they should convert into corporations to avoid paying the higher tax surcharge,” a source told the paper.
Two US-based mutual funds and one European hedge fund have sought advice on the subject, the report said.
Moneycontrol could not independently verify the story.
“Unless the government explicitly clarifies that such a transition will be exempt from GAAR provisions, foreign funds should not venture into such changes,” the source told the paper.
Lawyers and tax consultants have cautioned the FPIs, saying that tax avoidance laws could be invoked. As per General Anti-Avoidance Rules (GAAR), penalties or legal action can be invoked if tax implications are cited as the only reason for restructuring.
The government on July 5 raised the surcharged on individuals earning Rs 2-5 crore to 25 percent from 15 percent. The surcharge has been hiked to 37 percent from 15 percent for those earning above Rs 5 crore.
CBDT Chairman PC Mody on July 10 said FPIs would have the option of converting to corporates to avoid the impact of the increased surcharge.