MUMBAI: The Reserve Financial institution of India and the Enforcement Directorate are investigating a number of corporations which have obtained investments from their overseas subsidiaries or associates on the bottom that such fund flows may point out attainable round-tripping, mentioned folks within the know.

The central financial institution and ED, the company that probes cash laundering, have additionally began issuing notices to some people who’ve invested in Indian corporations by means of funding arms registered overseas.

The spectre of investigations has alarmed corporations on the lookout for abroad investments, mentioned tax specialists. They added that a lot of the investments are real, as the federal government has plugged a lot of the loopholes used earlier for routing cash by means of overseas jurisdictions, they mentioned.


“With the federal government amending the tax treaty with Mauritius, mixed with the laws on POEM (place of efficient administration), many considerations round round-tripping have been addressed. But, we proceed to see queries from the RBI and ED. Each people and corporations are being questioned with out distinction, and sometimes a few of the most credible corporations have been put beneath the lens,” mentioned Dinesh Kanabar, CEO of tax consultancy Dhruva Advisors.

Questioned by I-T Dept Too

The federal government amended the tax treaty with Mauritius in 2016, eradicating the tax arbitrage on capital positive aspects. Beneath POEM guidelines, abroad subsidiaries are handled as home entities for tax functions if they’re managed and managed from India.

In a single case that the RBI is trying into, notices have been issued to an Indian firm that had arrange a overseas funding arm after placing in $10,000 a number of years in the past. The overseas arm borrowed about $50 million, which was then invested within the Indian firm. The corporate has been instructed that this funding breached the abroad direct funding laws, mentioned an individual with direct information of the matter.

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In one other occasion, an Indian promoter had arrange an organization within the British Virgin Islands about 10 years in the past and transferred round ?100 crore over time. The overseas entity had its personal enterprise, which was worthwhile. This BVI-based firm later invested round Rs 500 crore in listed and unlisted Indian corporations. “The corporate was instructed to promote the shares and pay capital positive aspects tax,” mentioned one other particular person with direct information of the matter.

Business trackers mentioned the authorities’ deal with roundtripping has intensified within the current previous, which has spooked a number of corporations and people. “The federal government and the RBI are preserving a detailed watch on round-tripping and attempting to make sure that unaccounted funds parked overseas in addition to cash remitted exterior India by corporates and resident people — even when FEMA-compliant (International Trade Administration Act) — don’t come again as investments by means of tax haven jurisdictions,” mentioned Dilip Lakhani, a senior chartered accountant.

ET had reported on August 27 that the ED had began questioning a number of resident Indians about downstream investments made by overseas corporations the place they maintain fairness stakes. The ED notices come months after the earnings tax division questioned the identical set of traders on these investments beneath the provisions of the laws searching for to curb black cash.

Fearing investigation, corporations are actually reaching out to tax and authorized specialists earlier than searching for investments from overseas. One firm, for example, is taking authorized opinion as as to if an funding by an American agency that additionally has an Indian entity might be construed as roundtripping, mentioned an individual.