I-T dept sends notice to Mauritius-based PEs: Report

The Income Tax department has sought details of board meetings, dealer agreements, addresses of directors and names of beneficiaries from several Mauritius-based private equity funds.

A report in The Economic Times said that the Mumbai I-T office's international division sent notices to at least seven PEs over the past 2 months amid suspicion that unnamed persons are calling the shots while the boards and management of the tax haven entities are mere dummies.

If the department has reasons to believe that a fund's place of effective management is somewhere else and not Mauritius, many funds could be exposed to large tax demands, the report added.

According to the report, the information sought includes details of the holding company above the special purpose vehicle in Mauritius, the parent of the holding firm, and the ultimate parent; details of bank accounts of the PE entity and authorised signatory of the bank accounts along with their personal details and designations, minutes of meetings where a resolution to acquire (or sell) shares were initiated and passed, copies of valuation reports, and details of the source of funds for the transaction.

According to an anonymous source, the department is trying to find out names of people who have the final say, enjoy veto powers, and also whether funds were borrowed from entities or persons linked to India.

"If a fund is deemed a resident of India under POEM guidelines then the tax rate on dividend income could go up to 40% plus surcharge from 5-15% currently under most treaties. Long term capital gains tax could increase to 20% from 10%. Not just that but even income from investments made in other countries through these Mauritius entities could be taxed in India though the final determination could depend on the tie-breaker rules prevalent under certain treaties," Rajesh H Gandhi of Deloitte India told the publication.

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