The government is mulling new laws to bring into the tax net domestic companies, which deliberately route their overseas investments through tax havens to avoid paying taxes at home.
The inclusion of new provisions in the existing tax laws, called Controlled Foreign Corporation (CFC) laws, was also suggested by the Kelkar Task Force on tax reforms, said a senior finance ministry officer.
In view of a spurt in overseas investment by Indian companies, it has become necessary to frame CFC laws to prevent loss to the exchequer, the official said, adding that several developed countries like the US, the UK and Germany have similar laws.
Some of the countries like China, Malaysia and Indonesia too have framed their own set of laws to tax companies which try to evade payment of tax by routing investments through tax havens.
India, however, is still debating on the modality of the CFC, though the Kelkar report, submitted to the government six years ago, had recommended "introduction of anti-abuse provisions in the domestic law, enacting of CFC regulations and the law relating to thin capitalization."
The advantage of having CFC laws, the official said, is that it will not be affected by the Double Taxation Avoidance Agreement (DTAA).