27/03/2012

GAAR issue:

Transactions of FIIs routing money through tax havens like Mauritius (with or without P-Notes), which lack commercial substance, will be liable to tax in India under GAAR w.e.f April 01, 2012. The taxation rates are 15% on short-term gains and NIL on long-term gains, subject to payment of STT. Since taxation will be imposed on FIIs, we expect its impact to be passed on the ultimate beneficiary (P-Note holders).- option to escape imposition of GAAR could be migrating operations to Singapore. Probability of invoking Section 9 on gains arising out of P Note transactions looks remote since P-Notes are contractual in nature and do not constitute any transfer of shares/interest in any entity registered outside India.