Since we published our Duane Morris Alert on 23 January 2015 relating to
foreign portfolio investors (FPIs) and the Minimum Alternate Tax
(MAT), the Indian Government has been engaged on multiple fronts to
contain any adverse fallout from the issuance of tax notices under
the MAT provisions to FPIs.
Story So Far
The retrospective levy of MAT on FPIs was reportedly behind a
record dollar outflow triggered by FPIs last month. The government
has now clarified that the tax department will neither pursue
fresh MAT claims nor act on
previous ones until a committee headed by Law
Commission Chairman A.P. Shah submits its report to the government
on the applicability of MAT on foreign investors. On 7 May 2015,
Finance Minister Arun Jaitley announced the establishment of this
committee to explore the issue.
Until the committee headed by A.P. Shah opines on the
applicability of the MAT provisions on FPIs, no further action can
be initiated against the FPIs. Even though this is a stop-gap
measure, it appears to provide breathing space for FPIs to plan
their Indian investment strategy as most of the FPIs would have
already distributed the funds back to the investors and it is
likely to be impossible for them to recover the funds in order to
discharge MAT liability given its retrospective application.
If a tax show-cause notice arrives requiring MAT on an FPI, it
may be worthwhile to consider:
Revisiting the calculation of "book profits" for the
purposes of MAT as these calculations are frequently
Revisiting any Authority for Advance Rulings orders obtained at
the time of structuring the fund into India; and
Ensuring that all filing requirements with the Securities and
Exchange Board of India are up to date and procedural formalities
are completed, as they will become relevant in case further
judicial proceedings are involved.
It is likely that this issue will eventually need to be
pronounced upon by a court of law in India since it pertains to the
interpretation of a key point of law, but most investors may hope
that they will be spared protracted litigation in Indian courts by
the outcome of the A.P. Shah committee.
If you have any questions about the topics discussed in
this Alert, please contact Saionton Basu in Duane Morris'
London office, any of the attorneys in our India Practice Group or
the attorney in the firm with whom you are regularly in
Disclaimer:This Alert has been
prepared and published for informational purposes only and is not
offered, nor should be construed, as legal advice. For more
information, please see the firm's
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