India, Mauritius to amend tax treaty

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India will levy capital gains tax on investments routed through Mauritius from April 1 next year, bringing down the curtains on a contentious three decade-old rule that allowed companies to bring in billions of dollars by paying negligible taxes.

The taxes on capital gains will apply to investments made from April 1, 2017 and will be imposed at 50% or half of the domestic rate until March 31, 2019, and at the full rate thereafter.

How do people use tax havens to avoid paying taxes?

Through “round tripping” or “treaty shopping”.

How does round tripping work?

Round tripping refers to routing of investments by a resident of one country through another country back to his own country.

You get money out of India and transmit it to a tax haven with whom India has a bilateral tax avoidance treaty such as the double-taxation avoidance agreement (DTAA). In the tax haven, this money is treated as capital of a registered corporate entity. You now invest this money back in an Indian company as foreign direct investment (FDI) by buying stakes or invest it in Indian equity markets.

How does this help in avoiding taxes?

The entire purpose of this exercise is to window-dress as foreign capital your original money that you had taken out from India.

In the entire process, you end up paying zero or negligible taxes. In India, you can claim tax exemption citing the DTAA arguing that you have paid taxes in the source country. In the source country, taxes are negligible since it is a tax haven.

What is DTAA?

These are bilateral treaties signed between governments to prevent companies from being taxed twice over.

So, what was the problem with Mauritius?

Mauritius, and other tax havens, has almost negligible taxes. This was encouraging companies to route their investments in India through “shell” companies (those that exist only on paper) in Mauritius and avoid paying taxes.

How big was the problem?

At $94 billion, Mauritius has been the largest FDI source for India, accounting for 34% of total FDI in India between 2000 and 2015.

What are the changes that will plug this gap?

The changed DTAA will make it mandatory to pay capital gains tax on sale of shares in India by companies registered in Mauritius

When will the new rules kick-in?

Share sales in Indian companies by Mauritius-registered firms will be taxed at half of the applicable rate between April 1, 2017 and March 31, 2019.

If the capital gains tax in India is 10% currently, Mauritius-registered companies will be taxed at 5% during the first two years beginning April 2017. Full capital gains tax will apply from April 1, 2019.

What about previous investments?

The new rules will not apply only to investments made before April 1, 2017, meaning share sale of investments made before this date will be exempt from capital gains tax.

Which companies will benefit from the reduced tax rates during the first two years?

The benefit of 50% reduction in tax rate during the transition period from April 1, 2017 to March 31, 2019 shall be subject to a limitation of benefit (LOB) Article.

A Mauritius-registered company (including a shell or conduit company) will not be entitled to lower tax rate, if it doesn’t spend at least Rs 27 lakh in Mauritius in the previous 12 months. This is called ‘purpose and bonafide business test’.

How will impact investors?

Many foreign investors will have to redraw their strategies. The incentive to route investments through Mauritius will cease to exist once the new rule kicks-in. This could raise their tax outgo.

What about markets?

It could hurt short-term foreign investor inflows into India, particularly from companies whose investment strategies are guided by minimising taxes. This could pull down markets initially.

Are these rules related to the general anti-avoidance rules (GAAR)?

GAAR are aimed at curbing tax avoidance and aim to give tax authorities the right to scrutinise transactions that they feel have been done to avoid taxes.

Under GAAR corporations may be forced to restructure salaries of employees if taxmen conclude that these were structured only to avoid taxes. Similarly, if a foreign investment transaction from Mauritius has taken place with an intent to exploit DTAA, it will come under GAAR.

Implementation of GAAR will take place from April, 2017.

Source: http://www.hindustantimes.com/business/india-mauritius-tax-treaty-all-you-need-to-know/story-QSOlvKyt6rrN7E00S7wp9K.html

Projects worth Rs. 80,000 cr coming Tamil Nadu’s way

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Tamil Nadu State’s ports will also benefit hugely fromRs. 4-lakh-cr Sagarmala programme: Gadkari

“We need cooperation from State governments for infrastructure development. In Tamil Nadu, unfortunately, we had to terminate two projects,” said Nitin Gadkari, Road Transport, Shipping & Highways Minister. “We never mix politics with development and development with politics,” claimed Gadkari, speaking at ‘Breakfast with BusinessLine ’, an interactive session with senior executives from the corporate sector. But in Tamil Nadu, he said, his Ministry had to give up on the Maduravoyal-Chennai Port elevated road project as there was no progress. Gadkari said he had “written many letters to the State government” to no avail.

Another road project, by L&T, also had to be shelved, said Gadkari, who is touring the State to campaign for the BJP in the Assembly elections, which will be held on May 16.

“We need an atmosphere in the country for development of infrastructure. Our government and my ministry look for ways to help develop infrastructure in different States with different political parties but sometimes we are helpless,” he shrugged.

“I am not speaking politically, but I am talking of practical issues such as forest and environment clearances,” claimed Gadkari.

There is strong political will at the Centre and speedy decision making. Positive cooperation from stake holders will help achieve goals, he said.

Sagarmala programme

Tamil Nadu will be a huge beneficiary under Sagarmala, a Rs. 4-lakh-crore flagship programme of the Centre envisaging port-led development. Conceived as a 10-year project, he hopes to complete it in five years.

Gadkari listed out projects totalling more than Rs. 80,000 crore relating to port and industrial investments in Tamil Nadu. Under Sagarmala, the State will get an LNG terminal at Ennore at a cost of about Rs. 3,000 crore; at Tuticorin Port, a North Cargo Berth, a foodgrain berth, an additional container berth and a coal jetty are planned.

Also in the pipeline is the development of ports at Sirkali and Colachel. Work on all of these will start within two years, he said.

Huge investments are also planned in developing inland waterways using the major rivers in the State, including the Tamiraparani, Manimuttar, Cauvery, Palar, Vaigai and the Bhavani. These present a huge opportunity for private sector investments, he said.

 

Source: http://www.thehindubusinessline.com/todays-paper/projects-worth-rs-80000-cr-coming-tns-way/article8597545.ece

Silicon Valley venture capitalists raise more money, give less away

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Venture capitalists are raising money at the fastest rate in a decade, raking in about $13 billion in the first quarter of 2016.

But much of that cash won’t flow into new startups anytime soon. Rather, venture firms are bracing for a downturn and boosting reserves to keep companies they have already backed from going bust, said venture capitalists and limited partners.

“They are squirrels trying to pack their cheeks full of nuts,” said Ben Narasin, a partner at Canvas Ventures. “Everyone has been waiting for winter to start for a long time.”

The paradox of rising venture fundraising and falling venture investing is the latest sign of a tectonic shift in the tech startup realm. The extraordinary growth of so-called “unicorn” companies such as Uber and Airbnb – now valued at tens of billions of dollars, based on venture investments – has left many high-value startups with no “exit strategy,” in Silicon Valley parlance.

Burned by previous busts, Wall Street has lost its appetite for initial public offerings from money-losing companies. No venture-backed tech startup has gone public this year, and the few that did last year – including enterprise storage company Pure Storage, and cloud storage and file-sharing firm Box – have seen their share prices steadily sink. High valuations have also scared off potential acquirers.

Scale Venture Partners exemplifies the cautious approach taking hold in the VC industry. It chose to do one fewer investment from its last fundraising round and to increase its reserves by more than 10 percent.

“We will have to support our companies longer,” said Rory O’Driscoll, a partner at the firm, which raised a $335 million fund in January.

Accel Partners has reduced its pace of new investments since the middle of last year, while increasing its follow-on funding for portfolio companies, according to an analysis by venture capital database CB Insights.

The venture firm raised $2 billion in March, but it won’t tap into the new fund until late fall, said managing director Richard Wong.

Total U.S. venture investment fell to $12.1 billion in the first quarter – down 30 percent from the most recent peak of $17.3 billion in the second quarter of last year.

Chris Douvos, managing director of Venture Investment Associates, an investor in early-stage venture funds, says the funds he backs are increasing their reserves by 10 percent to 25 percent over what they had in previous funds.

The $13 billion raised by VCs is the third-largest quarter for fundraising since the dot-com peak in 2000, according to Thomson Reuters data. There is now $382 billion of dry powder – cash available to spend – held by both venture capital and private equity firms that invest in technology companies, according to investment banking and consulting firm Bulger Partners.

“It’s fast, and it’s a lot of dollars this year,” said Beezer Clarkson, managing director at Sapphire Ventures, which invests in early-stage venture funds.

Many VCs believe that more reserves will be needed for the big cash infusions that startups often need after establishing themselves but before turning a profit.

VCs are also seeing mutual funds retreat from late-stage startup financing deals. Mutual funds led just eight deals in the fourth quarter of last year, down from 26 in the second quarter, according to the research firm CB Insights.

The confluence of trends means that money-losing startups likely will struggle more for venture capital. That, in turn, could lead to more companies failing or cutting staff, cooling the red-hot market for tech talent. It could also strengthen the hand of dominant tech companies, who may face fewer disruptive rivals and attract employees tired of volatile startup life, according to tech recruiters.

CASH BURN

Until recently, many venture capitalists have had a land-grab mentality, even with more obscure startups such as Magic Leap – an augmented reality company that raised about $800 million in February – or Social Finance, a startup in the highly scrutinized fintech sector that raised $1 billion in September.

Investors competed fiercely to finance hot companies they believed could be the next Google or Facebook. Higher prices for smaller stakes drove up valuations in companies, including many who burned cash quickly in a quest for growth. Many venture capitalists say they overpaid by 20 to 30 percent, and now have to keep those companies afloat.

Over the past six months, however, nervous whispers about a tech bubble have sparked rising skepticism of venture-dependent startups with stratospheric price tags.

The same venture capitalists who jousted in bidding wars for the next great deal just six months ago are now fending off appeals.

Canvas Ventures, Norwest Venture Partners and Accel Partners – among Silicon Valley’s more prominent firms – say they are getting more calls from peers asking them to join a late-stage round for companies running out of cash.

“We get a lot more ‘special opportunities, just for you,'” said Wong, of Accel Partners. “We get the phone calls, along with everyone else.”

PAPER GAINS

For now, venture capitalists have little problem raising money, despite their new hesitance to spend it and the inability of many startups to turn profits or go public.

That’s in part because many VC firms are currently showing huge paper gains in the value of their portfolios. Many firms are raising as much as possible now, in case valuations drop in so-called “down rounds,” when later stage investors pay less for company stakes than earlier ones, and the returns on their investments plummet, according to limited partners.

Signs of falling returns are already emerging. Cambridge Associates, an investment advisor, measured a -0.4 percent return on the U.S. Venture Capital Index for the third quarter of last year, the first down quarter since 2011.

First Round Capital, an early-stage venture firm, warned its limited partners in a letter a year ago that the seed-stage venture capital deals will see much lower returns in the next several years.

But that warning didn’t scare Douvos, an investor in First Round, which was an early backer of Uber and made a bundle on the IPOs of Square and OnDeck Capital.

“Fund performance will soften,” Douvos said. But, he said, “The returns from First Round are so good that nothing else really matters.”

Read Source: http://www.reuters.com/article/us-venture-fundraising-idUSKCN0Y41DQ

 

Bandhan Bank mops up Rs. 13,000-crore deposits

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Bandhan BankBandhan Bank has been able to rope in nearly seven lakh new customers, after its transformation from a microfinance entity to a universal bank in August last year.

According to Chandra Shekhar Ghosh, Founder, MD and CEO of Bandhan Bank, “Customer addition through the banking network was nearly seven lakh. But, there will be new additions in the micro-banking segment too. Hence, the actual number of new customers will be higher.”

He was speaking on the sidelines of the opening of the bank’s flagship branch here in the city.

This is the bank’s 670th branch. Bandhan’s customer base across micro and general banking stands at over 85 lakh.

With 501 branches, 2,022 door-step service centres and 50 ATMs, Bandhan has been able to mobilise deposits to the tune of Rs. 13,000 crore. Its loan book stands at over Rs. 15,200 crore. According to Ghosh, the bank will soon have branches with dedicated services for high net-worth individuals. The modalities of the services on offer are being discussed, he said.

“Let’s assume we are offering personal wealth management services. Such services will be more on a one-to-one level rather than through bank branches. But, we need to build the scale first for that to happen,” he said.

Extending its service offerings, Bandhan kicked off NRI banking facility. NRI accounts will mostly be for remittances from abroad. The bank also entered the retail lending segment through small ticket home loans and financing of small vehicles in suburbs, semi-urban and rural areas.

Source: http://www.thehindubusinessline.com/todays-paper/tp-money-banking/bandhan-bank-mops-up-rs-13000crore-deposits/article8597526.ece

IMF: Global corruption costs trillions in bribes, lost growth

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Public sector corruption siphons $1.5 trillion to $2 trillion annually from the global economy in bribes and costs far more in stunted economic growth, lost tax revenues and sustained poverty, the International Monetary Fund said on Wednesday.

In a new research paper, the IMF said that tackling corruption is critical for the achievement of macroeconomic stability, one of the institution´s core mandates.

The Fund argues that strategies to fight corruption require transparency, a clear legal framework, a credible threat of prosecution and a strong drive to deregulate economies.

“While the direct economic costs of corruption are well known, the indirect costs may be even more substantial and debilitating,” IMF Managing Director Christine Lagarde wrote in an essay accompanying the paper. “Corruption also has a broader corrosive impact on society.

It undermines trust in government and erodes the ethical standards of private citizens,” Lagarde added.

The paper, titled “Corruption: Costs and Mitigating Strategies,” follows Lagarde´s warning to Ukraine in February that the IMF would halt its $17.5-billion bailout for the strife-torn eastern European country unless it takes stronger action to fight corruption, including new governance reforms.

Lagarde is due to participate in a British government-sponsored anti-corruption summit in London on Thursday that will include U.S. Secretary of State John Kerry and other senior officials including the presidents of Nigeria and Afghanistan.

Extrapolating from 2005 World Bank research, the paper estimated that around 2 percent of global gross domestic product is now paid in bribes annually.

But it said corruption´s indirect costs are substantially higher, reducing government revenues by encouraging tax evasion and reducing incentives to pay taxes, leaving less money available for public investments in infrastructure, health care and education.

Source: http://www.thenews.com.pk/latest/119186-IMF-Global-corruption-costs-trillions-in-bribes-lost-growth

RBI may allow you to be a lender (P2P)

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The RBI’s move to regulate the peer-to-peer (P2P) lending business has evoked good response with most participants saying that it could provide greater confidence to lenders and borrowers, as also to venture capitalists. The space has some 35 startups now and more than 20 of them were founded just last year, according to data from startup tracking platform Tracxn. They have collectively attracted only $7.5 million in venture funds, and the ones that have received the most funds include Faircent, Milaap, iLend, RangDe, LendenClub and LoanCircle.

“VCs have so far shied away from the industry due to lack of recognition and regulation of the segment,” says IDG Ventures partner Karan Mohla, adding that the proposed regulation will help the sector grow the way microfinance did.

P2P lending typically involves a technology platform that brings together borrowers and lenders, often individuals. The borrower can place his/her requirements,  and lenders can bid to service that borrower. Normally, the platforms insist on more than one lender servicing a single borrowing requirement to reduce risks. The interest rate may be set by the platform or by mutual agreement between the borrower and lender, or through an auction where lenders place bids. The platform does a preliminary assessment of the borrower’s creditworthiness, and they also collect the loan repayments. Over time, the platforms could automatically develop creditworthiness scores. Borrowers and lenders both pay a fee to the platform for these services. The average interest rates on these platforms tend to be high at 20% and the loan amount is an average of around Rs 1 lakh. Most borrowers are self-employed or those with salaries above Rs 6 lakh per annum. Most platforms charge around 2.5% of the loan amount as commission, from both parties.

The RBI is looking at factors such as what should constitute P2P lending, the legal framework, whether to set a maximum interest rate, and how to differentiate it with crowd-funding. It is, for now, looking to categorize them as non-banking financial companies (NBFCs).

“The potential benefits that P2P lending promises to various stakeholders (to borrowers, lenders, agencies, etc) and its associated risks to the financial system are too important to be ignored,” says the RBI consultation paper. The UK-based Peer-to-Peer Finance Association (P2PFA) estimates that lending through the channel globally has grown dramatically from 0.2 billion pounds in the first quarter of 2012 to 5.1 billion pounds in the first quarter of 2016.

Apoorv Sharma, founder of Venture Catalyst and an investor in LenDen, says P2P in India is still in its early stages but the government’s involvement could drive rapid growth.

Faircent, one of the largest platforms in the country, believes that the new norms will accelerate the growth in the sector – similar to how RBI regulations helped the e-wallet sector. The company has raised funding from Aarin Capital, M & S Partners and others. It has disbursed more than Rs 4.5 crore to beneficiaries so far and it is looking at loans of more than Rs 60 crore this fiscal.

Abhishek Periwal, founder of P2P platform KountMoney, said that regular banking channels don’t cater to lots of self-employed people. “P2P lending platforms come into play here, as they are faster than banks and NBFCs,” he said. Bhavin Patel, founder of LenDen Club, which started in 2015, believes the RBI regulation will be a confidence booster but has reservations about the regulator’s proposal that payment should happen directly between the borrower and the lender and that P2P platforms should have brick-and-mortar offices. He thinks the former will make monitoring and control difficult, and the latter is unnecessary. “A lot of our plans have been put on hold due to these uncertainties,” said Patel, whose platform has more than 2,000 borrowers and 900 lenders.

Source: http://economictimes.indiatimes.com/articleshow/52183326.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst.

U.S. issues rule requiring banks to identify shell company owners

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A company list showing the Mossack Fonseca law firm is pictured on a sign at the Arango Orillac Building in Panama City in this April 3, 2016 file photo. REUTERS/Carlos Jasso/Files

The Obama administration is issuing a long-delayed rule requiring the financial industry to identify the real owners of companies and proposing a bill that would require companies to report the identities of their owners to the federal government, U.S. officials said on Thursday.

The Customer Due Diligence (CDD) rule, in the works since 2012, and the proposed legislation are meant to hinder criminals from using shell companies to hide ownership and launder money, finance terror, and commit other threats to the global financial system.

The use of shell companies to hide assets and avoid taxes is in the spotlight following a massive leak of data from the Panama-based law firm Mossack Fonseca, which embarrassed several world leaders and sparked government investigations around the globe into possible financial wrongdoing by the wealthy elite. The International Consortium of Investigative Journalists said it will release a searchable database of more than 200,000 offshore entities next week.

“Fundamentally our financial system should not provide the rich, the powerful, and the corrupt with the opportunity to shield their assets,” said Wally Adeyemo, the U.S. deputy national security advisor for international economics, in a call with reporters on Thursday. “Nobody should be able to hide in the shadows from their legal obligations.”

The final CDD rule will require banks, brokers, mutual funds and other financial institutions to collect and verify the identities of the real people, or “beneficial owners,” who own and control companies when those companies open accounts.

Financial institutions will have to verify the identity of any person or company who owns more than 25 percent of the company, and one live person who controls the company even if that person owns less than 25 percent.

Banks will have two years to get their systems into compliance, said Jennifer Fowler, the U.S. Treasury deputy assistant secretary for terrorist financing.

The U.S. Treasury said in 2012 it planned to propose a rule that would clarify and standardize financial institutions’ obligations to know the identities of their customers.

But the proposal generated opposition from the financial industry, which argued it would be costly, ineffective, and difficult to implement because the United States lacks a national database of corporate information.

To address one of those industry concerns, Treasury will propose legislation requiring companies to report to the Treasury the identity of beneficial owners when a company is incorporated. The legislation would create a central registry of beneficial ownership, something the U.S. currently does not have, Fowler said.

U.S. secretaries of state have lobbied against similar legislative action in the past, arguing that the Internal Revenue Service already has corporate ownership records that it could make available to law enforcement.

Adeyemo said the Obama administration had been “consulting actively” with secretaries of state. “This is a place where we need Congress to act,” he said.

Taken together, the measures would make the financial system more transparent and close loopholes that allow for abuse or illegal activity, officials said.

More than 1,000 prosecutions are brought each year in the United States for money laundering, Fowler said. “This is a record that no one in the world can match.”

But, she added, “there are vulnerabilities that we need to address in order to maintain an effective regime.”

The Treasury is also proposing a regulation that would increase requirements for some foreign-owned companies operating in the United States to report information to the government, which officials said would prevent the use of those companies for tax avoidance purposes.

In addition, the Justice Department is proposing amendments that would strengthen its ability to pursue foreign corruption cases, including issuing subpoenas for records in money laundering investigations, obtaining overseas records, and using classified information in civil cases.

Source: http://www.reuters.com/article/us-usa-regulations-finance-idUSKCN0XX02O