How India’s taxmen are chasing global PE funds for misusing tax treaties to evade capital gains tax

The income tax department has reportedly slapped an over Rs 500 crore tax demand from big global funds, including private equity and venture capital funds, for misusing tax treaties with Mauritius, Cyprus and Singapore and underreporting income. While investing in start-ups in India, private equity funds either take the traditional route of investing directly or through a special purpose vehicle (SPV) set up outside India, usually in tax- and investor-friendly jurisdictions such as Mauritius, Singapore and Cyprus.

Against this backdrop, Nishant Shah, Partner, Economic Laws Practice (ELP) has been quoted by The Times of India in their article titled ‘How India’s taxmen are chasing global PE funds for misusing tax treaties to evade capital gains tax.’ Nishant says, “The allegations of the tax authorities have been primarily focused on invoking General Anti Avoidance Rules on the basis that the pooling vehicles lack sufficient commercial substance. Tax authorities have also been adopting a view that since the pooling vehicle is effectively managed from India, it should be treated as a tax resident of India.”

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