Budget 2015 proposals: ‘good tidings’ for Asset Managers and foreign portfolio investors

March 09,2015
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Gautam Mehra (Partner & sector leader, Asset Management, PwC)

The ‘good tidings’ in the Budget 2015 proposals presented by the Finance Minister could move asset management to center stage in India (much in advance from what we at PricewaterhouseCoopers had projected in our report on Asset Management 2020).

“What’s in”

‘GAAR’

A key concern of the offshore investor community has been uncertainty in India taxation with respect to the remit of General Anti Avoidance Rules (‘GAAR’) provisions. Recognising that there are contentious issues related to GAAR that need to be addressed, the Finance Minister has proposed to defer GAAR provisions to 1 April 2017. More importantly, the Finance Minister has, in his Budget speech, clarified that ‘when implemented, GAAR would apply prospectively to investments made on or after 01.04.2017’. While this certainly allays the immediate concerns of offshore investors, one hopes that the Government proactively engages with the offshore investor community when finalizing the scope of GAAR and its guidelines.

‘POEM’

The threshold for triggering tax residency for foreign corporates is proposed to be diluted to ‘foreign corporates having a place of effective management (‘POEM’) at any time in India during the year. Further, POEM has been defined to mean a place where key management and commercial decisions that are necessary for the conduct of the business of an entity as a whole are, in substance, made.

The POEM provisions are couched quite widely. Interestingly, a foreign company (say, a Mauritius tax resident) having a POEM in India could imply that the Revenue authorities would, as discussed in Circular No 789 and Circular No 1 of 2003, be free to proceed to determine the residential status as per the relevant tax treaty and where the foreign company is found to have its POEM in India, it could be taxed in India.

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