BIZweek n°281 12 mar 2020
BIZweek n°281 12 mar 2020
  • Prix facial : gratuit

  • Parution : n°281 de 12 mar 2020

  • Périodicité : hebdomadaire

  • Editeur : Capital Publications Ltd

  • Format : (260 x 370) mm

  • Nombre de pages : 7

  • Taille du fichier PDF : 1,7 Mo

  • Dans ce numéro : l'AAR ne consière pas Maurice comme un centre financier reconnu.

  • Prix de vente (PDF) : gratuit

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JEUDI 12 MARS 2020 BIZWEEK ÉDITION 281 In a ruling released 17 February, India’s Authority for Advance Rulings, a quasi-judicial body which rules on the taxation of non-residents, denied a capital gains tax exemption under the India– Mauritius tax treaty to a Mauritian entity. The Authority for Advance Rulings looked through the structure of the transaction and, treating the entity as a shell company, concluded that the dominant purpose of the entity was to avoid tax in India. As per the India—Mauritius tax treaty (amended in 2016), gains on the sale of shares acquired before 1 April 2017 are taxable only in the country of residence of the seller and not the source country. Accordingly, gains on the sale of shares of an Indian company by a Mauritian resident are taxable only in Mauritius and not in India. The treaty was amended in 2016 to remove this exemption for investments made on or after 1 April 2017. Bid Services Division (Mauritius) Ltd The applicant, Bid Services Division (Mauritius) Ltd., was incorporated in Mauritius in August 2005. It held a Category 1 Global Business License issued by the Financial Services Commission, Mauritius, and a valid tax residency certificate. Bid Services Division (Mauritius) Ltd was a wholly-owned subsidiary of a South Africa company, Bid Services Division (Proprietary) Limited. Bidvest Group Limited, incorporated in South Africa, was the ultimate holding company of the group. The parent company was engaged in the business of international services, trading, and distribution and was listed on the Johannesburg Stock Exchange of South Africa. Pursuant to an international competitive bidding process, the Airports Authority of India (with the approval of the government of India) invited bids for development, operation, and maintenance activities at the Mumbai International Airport and ultimately selected a consortium between Bid Services Division (Mauritius) Ltd, GVK Airport Holdings Private Limited, and ACSA Global Limited from out of ten bidders based on various qualifying criteria. Ruling request On 1 March 2011, the applicant, Bid Services Division (Mauritius) Ltd, entered into an agreement with GVK Airport Holdings to sell its 13.5% stake in the Indian joint venture for a consideration of USD 231 million. The transaction was completed in the applicant’s 2011—12 tax year. The applicant approached India’s Authority for Advance Rulings to seek a ruling on whether the gains arising on the transaction would be liable to tax in India having regard to the provisions of the India – Mauritius tax treaty. ted by BSDM, whereas ACSA commitied 10% of funding through AGL. What in effect changed is— the routing of funds of Bidvest group through Mauritius. The other two groupsi.e., GVK and ACSA continuel to have their headguarlers in India and South Africa respectively. So in the JV there is a shell company, without any tangible assets, employees, office space, etc. which was incorporated few days before the bidding.lt has no management experts or financial advisers on ils pay roll or on hire. Fuller, Mauritius unlike London or New York is not a known financial centre or e vibrant business hub from where capital can be sourced at cheaper rates or top-gualityprofessionals'engineers/consultants could be employed. Neither Mauritius can boast of being seat of civil aviation experts. We thus, fail te appreciate what purpose the applicant is serving being in the JV or what is the economic or commercial nationale for roping in the applicant in the JV. Did it hire finance professionals who could arrange finance or did the entity have collaterals for raising funds or did it provide a meeting groundl where active. cerebral discussions coulctelace durina the develooment orocess of the ora Tax authorities’objections and conclusion The tax authorities submitted that the Mauritius-incorporated applicant was not included as a consortium member until the filing of the technical and financial bid at the end of stage 2 of the bidding process. The applicant was not even in existence for most of the bidding process and was incorporated just two weeks before the submission of a binding bid by the consortium. The tax authorities argued that if the Bidvest group wanted a special purpose vehicle to undertake the project, business sense indicates that India or South Africa would have been the best alternatives and not some third jurisdiction like Mauritius. As per the tax department, the only advantage Mauritius provided was tax benefits LA TOUR INDIA’S AUTHORITY FOR ADVANCE RULINGS  : « Unlike London or New York, Mauritius is not a known financial centre » The Authority for Advance Rulings (AAR) in its recent verdict in the matter of Bid Services Division (Mauritius) Ltd, In re ([2020] 114 taxmann.com 434 (AAR – Mumbai)), denied the benefits of the capital gains tax exemption under the India – Mauritius Tax Treaty to the taxpayer on the sale of its Indian investment. Furthermore, the AAR questioned the choice of jurisdiction by the entity and remarked that Mauritius, unlike London or New York, is not a known financial centre or a vibrant business hub, nor can it boast of being a seat of civil aviation experts with respect to capital gains. Thus, the inclusion of a Mauritian entity in the consortium lacked commercial substance and bonafide business purpose and it was a clear design to avoid paying taxes in India. On this basis, the tax authorities contended that the Mauritian entity should be overlooked, and the investment should be considered as having been made directly by a South African entity. Under the India – South Africa tax treaty, in absence of any exemption, the resulting gains are taxable in India. Substance in the applicant It was observed that the applicant did not have any tangible assets, employees, office space, management experts, or financial advisers. The applicant did not hire any finance professionals who could arrange finance, it did not have collaterals for raising funds, it did not provide a meeting ground for having active discussions during the development process of the project or for addressing any difficulties encountered during the implementation phase, and it did not discuss critical needs of the project in its board meetings. Moreover, it had no independent sources of funds or income nor had any fiscal independence. Choice of jurisdiction India’s Authority for Advance Rulings remarked that Mauritius, unlike London or New York, is not a known financial centre or a vibrant business hub, nor can it boast of being a seat of civil aviation experts. [www.taxmanagementindia.com] Ruling The AAR deciding in favour of the tax authorities, ruled that Taxpayer was disentitled to the Treaty benefits, LOB or not, and the capital gains arising from the sale of shares of the Indian Target was subject to tax in India. The AAR ruled that the dominant purpose of interposing the Taxpayer in the structure was to avoid taxes. The AAR frownedupon the practice of ‘treaty shopping’and noted that although the funds were routed through the Taxpayer in Mauritius, the beneficial owners of the investment in the Indian Target were the parent entities of the Taxpayer (outside Mauritius). [Source  : Multinational Group Tax & Transfer Pricing News] 3

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