Aberdeen launches India tax claim

Aberdeen Asset Management, Europe's largest listed fund house, has launched a legal challenge against a tax claim in India, escalating a brewing dispute between global investors and India's government.

The legal case, filed this weekend at the High Court of Bombay, makes Aberdeen the first investor to confirm publicly that it planned a legal fight against demands that foreign funds pay India's minimum alternative tax, a form of taxation from which they have historically been exempt.

Aberdeen's challenge will be watched closely by hundreds of other funds operating in India, who were alarmed by remarks last month from Arun Jaitley, finance minister, that India would seek to raise as much as Rs400bn ($6.4bn) by levying MAT on foreign investors.

"It our case the demand is small, but it is the principle of thing," said Hugh Young, managing director in Asia for Aberdeen, which is one of India's largest foreign investors, with roughly $10bn in assets.

Mr Young confirmed that only one of Aberdeen's funds had been affected, with a demand for "less than $50,000" in MAT - far lower than demands of $1m and higher received by some other funds, according to tax experts.

"The problem is we have no idea how many more [demands] we are going to get, so we have to fight," Mr Young added. "It is partly a duty to our clients, but also that if you don't challenge this, we could expose ourselves to many more."

The MAT dispute, which came to light last month, is the latest disagreement between India's revenue authorities and foreign investors, including a series of high-profile tax battles involving businesses such as Vodafone and Cairn Energy.

India first introduced MAT during the 1990s to ensure domestic businesses paid a minimum level of tax, normally 20 per cent of profits.

But tax inspectors have only recently begun to issue demands to some of the roughly 6,000 foreign funds investing in India, citing a 2012 legal ruling claiming international funds are liable for the charge. 

Aberdeen's challenge comes in spite of recent concessions from India's government designed to defuse the row.

Last week Mr Jaitley confirmed that MAT would in future not apply to interest payments for foreign investors in Indian bonds, adding to a previous commitment that the tax would not apply to equities after April 1 2015.

Jayant Sinha, minister of state for finance, also said during April that MAT would not apply to foreign funds investing in India through either Mauritius or Singapore, where investors are protected by favourable tax treaties.

However, the government said it planned to press ahead with historical MAT claims dating back roughly over the past five years, leaving hundreds of foreign funds worried that they could face fresh claims.

Five other investors, including First State, another prominent foreign fund with large holdings in India, are also understood to have launched a legal challenge against their own MAT claims, although the funds involved have declined to comment.

Writing in the Financial Times last week, Mr Jaitley hinted at further action to resolve "legacy" tax issues inherited from India's previous government, while admitting the current regime had "not been entirely successful in convincing investors of the fairness of our tax system".

© The Financial Times Limited 2015. All rights reserved.
FT and Financial Times are trademarks of the Financial Times Ltd.
Not to be redistributed, copied or modified in any way.
Euro2day.gr is solely responsible for providing this translation and the Financial Times Limited does not accept any liability for the accuracy or quality of the translation