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GAAR: FIIs meet finance ministry officials 9 years 3 weeks ago #101

Amid concerns of foreign investors over the tax treatment of investments, FIIs met senior finance ministry officials, for the second time within seven days, to discuss the provisions of anti-tax avoidance rules or GAAR.

"The meeting ended on a positive note. We are examining the concerns of FIIs. Our people are working on rules," a senior finance ministry official said.

The meeting was also attended by representatives from the market regulator Sebi.

Last week, foreign institutional investors (FIIs) met Finance Secretary R S Gujral during which the finance ministry assured them that the General Anti-Avoidance Rule (GAAR) provisions would be invoked only in case of "impermissible arrangements".

"If they are in a permissible arrangement, clearly they are governed by the particular treaty and GAAR does not get invoked at all. If it is an impermissible arrangement, then GAAR gets invoked and the treaty does not help them," Gujral had said.

In the Finance Bill 2012, Finance Minister Pranab Mukherjee has proposed to include GAAR provisions, which is aimed at targeting deals whose purpose is tax avoidance.

Foreign investors fear that that the proposed rule could apply to holders of Participatory Notes (P-Notes), the instrument through which foreign entities not registered in India could invest in the stock markets, issued by FIIs.

Mukherjee has said that persons investing through P-Notes would not be liable to tax in India and the finance ministry has indicated that clarification on the GAAR provision would come when the Finance Bill is passed by Parliament.

FIIs have assets under custody of more than Rs 10 lakh crore, or 17 per cent, of the capitalisation of India's equity markets. Further, these entities also invest in the Indian government and corporate debt.

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