Permanent establishment funds to get FM’s attention

  • HT Correspondent, Hindustan Times, Mumbai
  • Updated: Feb 28, 2015 23:41 IST

The Union Budget 2015 on Saturday proposed that if foreign institutional investors (FIIs) do not have a permanent establishment (PE) in India, then there can be no incidence of Minimum Alternate Tax (MAT).

“While this is a welcome move and is widely expected to provide relief to foreign investors, it also raises concerns,” said Dinesh Kanabar, tax expert and founder of Dhruva Advisors. “The proposal looks at only FIIs and does not consider any other foreign company. Also, relief is provided only to those PEs that have capital gains and do not look at firms with interest income.”

Law and tax firms are expected to make representations to the FM on the issue since they are worried that lack of clarity in widening the scope could lead to increased litigations.

The Budget has also proposed to clarify that the presence of the fund manager of an offshore fund in India, does not create the presence of a business connection in the country, in a bid to check reverse brain drain of highly qualified fund managers who left the country to manage offshore funds in a tax efficient manner.

“Neither would their presence be construed as making the offshore fund an Indian tax resident,” said Bijal Ajinkya, partner, Khaitan & Co. “Hence their presence in India would not lead to any negative tax implication for the offshore fund. We would expect a large quantum of such managers to relocate to India,” she added.

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