Tax haven alert: Indian regulator investigates companies using Mauritius route
It is believed that certain large Indian business houses channelized money into India through the Mauritius route to hike up their own stock prices. (Image: Mint)
Economic relations between Mauritius and India continue to suffer on the back of misuse of the island economy’s low tax regime by companies.
In the latest instance, it is believed that certain large Indian business houses channelized money into India through the Mauritius route to hike up their own stock prices. The financial jargon for this practice is ‘round-tripping’.
Accordingly, Indian market regulator, the Securities and Exchange Board of India (SEBI) has sought information from some large Indian business houses about the nature of their financial dealings with UBS, one of the largest banks in the world, about eight years ago.
The SEBI investigation seeks to identify the companies that could have used FII sub-accounts with the help of UBS to pump in money into their own shares and artificially inflate their stock prices, according to statements made by SEBI staff to local press.
Some companies which have been asked to furnish details of their transactions include beverages major United Breweries, Indian conglomerate Vedanta Group’s Sterlite, and real estate giants Unitech and DLF. The companies themselves declined to comment on such ‘speculations’.
According to SEBI officials, in 2007 it was tipped off by Britain’s sectoral regulator, the Financial Services Authority (FSA), about suspicious use of funds by some Indian companies using the British banking channel.
SEBI has reason to suspect that some Indian companies first opened bank accounts in the UK and deposited money in those accounts. They then channelized those funds to Mauritius, known as an offshore financial center, and then opened sub-accounts with Financial Institutional Investors (FIIs) there. Finally, FIIs sub-accounts were used to buy the companies’ own stocks to jack up prices, a SEBI official said. Under Indian laws, such transactions are illegal.
Based on the FSA report, SEBI has launched its own investigations.
“The FSA report had also mentioned about banking transactions by these companies. Our investigations found that some Indian companies had also used bank accounts in Belgium to route funds to FII sub-accounts in Mauritius and then utilized the money in their own stocks,” a SEBI official said.
The official concluded that a part of the investigation was also targeted at finding out from where the companies got the money that they put in the UK bank accounts that was eventually channeled to India through the Mauritius route.
Most recently, in light of the uncertainty over the tax treaty between India and Mauritius, it emerged that foreign direct investment routed through Mauritius to India between April 2013 and January 2014 had halved.
For the 10 months from April 2013 to January 2014, only USD 4,113 million was channeled into the country through Mauritius, compared to USD 8,175 million in the corresponding year-ago period, according to data released by the Indian Department of Industrial Policy and Promotion (DIPP).
Source: Times of India