Tax haven nations [Cayman Islands] hit FDI crossroad as revenue department remains cautious
From UK Daily Mail
The department of industrial policy and promotion (DIPP) has adopted a more liberal approach to recent foreign direct investment (FDI) proposals.
But the finance ministry’s department of revenue (DoR) is treading more warily because it has reservations on investment coming through tax havens such as Mauritius and the Cayman Islands.
A typical case is that of ICICI Venture Funds Management Company Ltd, which had submitted a proposal to the foreign investment promotion board (FIPB) anticipating $750 million (Rs4,074 crore) flowing in as FDI into the country.
The company had sought approval for its foreign collaborator Indian Infrastructure Advantage Fund DIF 1 to invest up to $750 million as 49 per cent of the aggregate corpus of a Trust named Indian Infrastructure Advantage Fund, which would make investment in securities of Indian companies in the infrastructure sector subject to venture capital fund regulations.
According to sources, the DIPP during an FIPB meeting on March 6 said that it has no objections to the proposals provided it meets the conditions of the FDI policy, and all investment made by the Trust would be taken as foreign investment.
However, DoR did not support the proposal saying the investor company does not seem to have sufficient funds to make the proposed investment and details of the ultimate beneficiaries of the investment were not provided.
DoR further said that the investor was based in Mauritius and ICICI Venture Funds had stated that the funds were to be mobilised from various persons who are yet to be identified.
DoR stated, “This indicates that funds from other jurisdictions are being routed through Mauritiusbased entities to take advantage of the India-Mauritius Double Taxation Avoidance Treaty (DTAA), which is a clear case of treaty abuse.”
The proposal was deferred and ICICI Venture Funds has been asked to give a list of investors.
A senior Indian Revenue Service (IRS) official told MAIL TODAY that the recent journalistic sting operation carried out on ICICI Bank, HDFC Bank and Axis Bank, which showed that these institutions were ready to bend rules, only underlines the need to be more careful in processing these applications.
“DoR is not out to block genuine FDI proposals,” he added. He also pointed out that some FDI applicants when asked to come back with more information had not done so and so naturally their proposals had to be rejected.
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