 "Foreign PEs, VCs, debt FIIs also get MAT relief")
However, this provision would be applicable prospectively from this financial year and the past cases of MAT on foreign institutional investors (FIIs), which had spooked markets, would continue. Foreign inflows into Indian stocks so far this month at $1.8 billion are much lower than those into South Korean ($3.9 billion), Taiwanese ($3.4 billion) and Brazilian ($2.3 billion) ones, show data from Bloomberg.
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Replying to a debate on the Finance Bill 2015, Jaitley also awarded a partial relief to real estate investment trusts (REITs) and infrastructure investment trusts (InvITs) from MAT.
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He also dropped a controversial provision that could have brought foreign companies under the tax net, even if they held only one board meeting in India.
Besides, he exempted offshore government-owned funds from tough eligibility criteria for special tax treatments. These exemptions would be applicable to both Indian government’s offshore funds and sovereign foreign funds.
The Lok Sabha passed the Finance Bill 2015, completing the Budget exercise in the House. Now, the whole process would go to the Rajya Sabha (which, however, does not have the power to reject the Bill).
The minister said all capital gains from not only sale of securities but also royalties, interest and technical services fees earned by foreign companies would be exempt from MAT if the normal tax rate on such income was lower than 18.5 per cent. This will provide relief to foreign debt funds, PEs and VCs.
However, concerns over older cases linger as Jaitley called them “legacy issues”.
“The clarity on applicability of MAT for FIIs prospectively clearly defines how they will be taxed in future. But for past cases the concerns are still there and we could be staring at a series of litigation,” said Rajesh Gandhi, partner, Deloitte Haskin & Sells.
As the past notices sent to FIIs tanked markets, the finance ministry had earlier said investors belonging to countries with double-taxation avoidance agreements (DTAAs) would be “considered” for exemption. However, this would be limited only to those DTAA jurisdictions that have specific exemptions from capital gains.
Relief was also in the offing for REITs and InvITs when Jaitley announced MAT would not be applicable when assets were being transferred to REITs. MAT will be only applicable when units are redeemed.
Tax experts said industry had argued why apply MAT when there was no actual transfer of cash.
“The clarity on MAT for REITs and InvITs is welcome. However, the other industry demand on elimination of the dividend distribution tax (DDT) remains to be addressed. A structure that envisages an LLP [limited liability partnership] instead of corporate special purpose vehicle should not be subject to DDT,” said Gautam Mehra, leader, financial services tax, PwC India
Jaitley removed contentious wording on treating a foreign company as Indian for tax purposes. He clarified a company would be considered resident if its “place of management” was in India.
The Finance Bill had proposed a company will be considered resident if it were an Indian company or its place of effective management ''any time'' in that year was in India. “Concern was raised at the phrase ‘any time’. It could lead to unintended consequences, such as even one board meeting in India may make a foreign company resident in India,” Jaitley said.
As such, he said the phrase — “any time” — would be dropped from the Finance Bill for determining the place of effective management of a company.
The amended Finance Bill will also make it easier for government funds (Indian or foreign) abroad to get special tax treatment. The Finance Bill provides for a special regime so that fund managers of offshore funds can operate in India and the tax liability will be neutral. To avail the special treatment, the Bill imposed conditions such as at least 25 members of the fund not be connected, the threshold of participation for an Indian resident not be more than five per cent and the interest of a single member for the group or connected persons be less than 50 per cent.
“These conditions are difficult to be fulfilled by government funds, sovereign wealth funds and pension funds, which are regulated under the laws of their countries,” Jaitley noted.
Accordingly, he proposed to provide that these conditions would not apply in the case of investment set up by a government, a central bank or sovereign wealth funds and such other funds that may be notified by the central government.
Jaitley also gave relief to Goa miners by reducing export duty on low-grade iron ore and to domestic silk manufacturers, rubber growers and sugar cooperatives. He gave service tax exemptions to insurance companies providing various social welfare schemes such as Pradhan Mantri Jan Dhan Yojana.
He also reiterated controversial income tax return forms would be replaced with "very simple" ones soon.