While India continues to be an attractive investment destination, the dynamic Indian tax framework create some apprehensions in the investors’ perception about the approach on the tax issues related to transactions in India.
The Indian tax landscape has been in limelight internationally due to the landmark ruling of Supreme Court in Vodafone case followed by the retrospective amendments along with the proposed General Anti-Avoidance Rules.
A survey released by Deloitte finds that the majority of respondents believe that the draft guidelines issued by the Shome Committee are adequate and advice of the GAAR panel should be mandatorily followed; however, the results suggest that respondents were concerned over the independence of the members in the GAAR panel, which could otherwise falter the whole perspective, increase prevailing uncertainties thereby resulting in higher tax litigations. This could create a negative image for India Inc. on the global investment landscape.
According to the survey, even after the recent concerns over India-Mauritius treaty and approach of Indian tax authorities towards intermediate holding company (IHC) investments, 62% of the respondents still consider investment through IHC in India as the most viable option.
Despite the general perception that such investments are made for tax benefits, about 51 percent of the respondents considered factors other than reduction in tax cost as crucial for deciding IHC jurisdiction.
Around 63 percent of the participants consider Singapore to be a favourable jurisdiction for investments into India.
The survey shows that lately, Mauritius has been losing luster as a preferred IHC jurisdiction for investments into India due to unfavourable and aggressive posture by Revenue Authorities and lack of certainty surrounding it.
“The investors prefer a jurisdiction, which provides certainty and has a positive perception," says a Deloitte spokesperson. "We have also found during the survey that there is a wide concern over the approach adopted by Indian revenue authorities in examining such investments. Everyone is of view that there should be tax policy to deal with IHC so that the current uncertainty can be done away with."
The spokesperson adds there is a need for a robust tax policy and an equally strong tax litigation process or an effective dispute resolution mechanism, to reinforce a stronger faith of multinational investors in the Indian tax environment.
Around 53% of the respondents believed that uncertainties in tax position are one of the major factors that pose challenge in doing business in India.
Despite uncertainties surrounding inconsistent tax positions adopted by Indian revenue authorities and judicial bodies, the survey result suggests that the investors were still optimistic in overcoming the PE exposure partly by carefully structuring the way the operations are carried out in India.
Contrary to the expectations, the results suggest that investors believe India has an effective tax credit mechanism, which helps in reducing the overall tax burden, though there was still a room for improvement.
Most respondents (83 percent) indicated that there should be rationalisation in India’s corporate tax rates - in the range of 20 to 30 percent.
On an overall basis the result indicate that Indian tax climate was considered to be reasonably favourable and India continued to be an attractive investment destination despite some dissatisfaction in the minds of the investors with the existing tax policy and the litigation framework in India.