London based Investment Association, ASIFMA seeks to be party in Castleton case over MAT
MUMBAI: Two associations representing foreign portfolio investors are seeking to join the battle over minimum alternate tax in the Supreme Court, although analysts are unclear if entities without a tax treaty will benefit.
Investment Association, based in London, and Hong Kong-based Asia Securities Industry & Financial Markets Association (ASIFMA) plan to approach the Supreme Court in the next 10 days to become party to the ongoing case between Castleton Investment and the revenue department over whether MAT was applicable on transactions by foreign companies.
“We intend to intervene in the Castleton case on behalf of our members, many of whom have invested billions of rupees in the Indian economy and Indian companies, and who are now having to consider potential impact of MAT on their clients,” the Investment Association said in an email. The group has about 200 members who manage more than £5 trillion, according to the company’s website.
The income-tax department issued notices to foreign portfolio investors asking them to pay MAT for prior years, prompting worries about an arbitrary tax regime in India. While the government has clarified that MAT will not be applicable from April 2015, jittery foreign investors drove down Indian shares in a selloff in April, forcing the government to set up a committee to examine the MAT issue and put on hold all new notices.
The two associations represent a majority of the 68 FPIs that received MAT notices. The Castleton case deals with the verdict of the Authority for Advanced Rulings, which said MAT can be levied on capital gains. The ruling formed the basis of notices sent by the income tax department and has been challenged by Castleton.
ASIFMA could also become party to the case, people familiar with the development said. At a May 4 conference call with analysts that ET attended, Patrick Pang, MD and head of fixed income and compliance, had hinted at such a possibility. An email sent to ASIFMA was unanswered.
While most FPIs approached AAR, six of them filed a writ petition in the Bombay High Court. “This controversy is very unfortunate and its implications are far beyond FIIs and extend to private equity and other foreign companies,” said Ketan Dalal, senior tax partner at PricewaterhouseCoopers India. “MAT was never intended to apply to foreign companies. While majority of the issues for the future have been resolved, the ghost of past years’ uncertainties has seriously impacted sentiment and needs to be resolved quickly.”
Even as FPIs seek relief, analysts are not clear if the court’s decision will benefit entities from countries with which India doesn’t have tax treaties. Castleton invested in India through Mauritius, which along with Singapore, signed Double Taxation Avoidance Agreements with India. Most FPIs represented by associations don’t belong to treaty countries.
“It is likely that the SC might accept intervention by other FPIs since the Castleton case has now become a much larger issue impacting several hundreds of FPIs,” said Rajesh H Gandhi, partner, tax, Deloitte Haskins & Sells. “However, we will have to wait and watch because the intervening FPIs will typically come from non-treaty countries and so their facts will be different from the Castleton case.” Recently, the government clarified that FPIs from Mauritius and Singapore are exempted from MAT.
Industry trackers say the court may rely upon an earlier ruling in the case of Azadi Bachao Andolan, where associations representing foreign investors were not made party to the case but were allowed to depose because the issue affected them substantially.
“If SC allows intervention and rules in favour of FPIs, it will bring an early end to the MAT saga, which could otherwise go on for several years, denting India’s image as a country of tax uncertainties,” Gandhi said. “It is also possible that the Supreme Court might restrict its ruling to the applicability of Mauritius treaty benefit, which is the last thing FPIs want.”
