Indian Tax Authority Vows To Scrutinise Joint Venture For Evidence Of 'Treaty Shopping'

by Lorys Charalambous, for LawAndTax-News.com, Cyprus

08 July 2003

The Indian Revenue Department has allowed the Foreign Investment Promotion Board (FIPB) to approve a 50:50 textile industry joint venture proposal from Mauritius-based Ganesha Ltd, but has insisted upon the addition of a proviso to the approval, which states that the company must not attempt to take advantage of the double tax treaty (DTT) between India and Mauritius.

Concerns have been expressed over corporate abuses of this agreement, which range from fiscal 'round tripping' (when Indian-owned foreign companies use the jurisdiction to avoid tax on domestic capital gains), to overseas companies posing as Mauritian entities in order to take advantage of the DTT in joint ventures with Indian firms.

Given that Ganesha Ltd - which was incorporated in Mauritius in 1993- is a 100% subsidiary of the US-based Murjani group, and is beneficially owned by UK resident Gunni Murjani, 'treaty shopping' was clearly a concern for the Revenue Department in this case. Consequently, the authority has stipulated that:

'Approval by the Foreign Investment Promotion Board (FIPB) will in no way finally determine the residential status of the company as being Mauritian.'

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