75th Founding Day Lecture Meeting on “India@2030” Know More

September 2009

Companies routing funds to evade taxes face taxing times

By Raman Jokhakar, Tarunkumar Singhal, Chartered Accountants
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  1. Companies routing funds to evade taxes face taxing times

The Government is mulling new laws to bring into the tax
net domestic companies which deliberately route their overseas investments
through tax havens to avoid paying taxes at home.

The inclusion of new provisions in the existing tax laws,
called Controlled Foreign Corporation (CFC) laws, was also suggested by the
Kelkar Task Force on tax reforms.

India, however, is still debating on the modality of the
CFC, though the Kelkar report, submitted to the Government six years ago, had
recommended “introduction of anti-abuse provisions in the domestic law,
enacting of CFC regulations and the law relating to thin capitalisation”.

The advantage of having CFC laws is that it will not be
affected by the Double Taxation Avoidance Agreement (DTAA). Currently, the
profits of subsidiaries of Indian companies are not taxable in India, as there
are no laws to bring them under the tax net. In fact, foreign subsidiaries do
not declare their dividends to avoid being taxed in India.

(Source : Business Standard, 3-8-2009)

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