Impact of India's DTC and GAAR on foreign investments

Abstract

The announcement of General Anti-avoidance Rules (GAAR) in India post the Vodafone-Hutchison capital gains tax issue has heightened the level of caution with which foreign investors are now looking at India as an investment destination. While, in the longer run, GAAR implementation helps the investors who perform genuine deals & transactions, as well as the government of India through higher tax revenues, there are several key issues that need to be looked at so that the GAAR implementation goes smoothly. The below report attempts to analyze the need for GAAR and it’s impact on Double Taxation Avoidance Agreements (DTAA). The report studies & explains current trends in taxation of capital inflows as well as the response received to GAAR in other developing nations. The report also records the impact of GAAR to VC and PE investments in India. Finally, the report analyzes one alternative investment approach, and concludes with guidance for both the government of India on GAAR implementation, and for investors on how to incorporate GAAR compliance in further deals & transactions.