AMSTERDAM: India is unlikely to amend its tax treaty with the Netherlands as it did with Mauritius, Singapore and Cyprus and this could shape the investment strategy of foreign portfolio investors (FPI) and private equity (PE) funds investing in India, said three people in the know.
“There were talks to amend the tax treaty between India and Netherlands for last two years. Recently, we were told that as the Netherlands is not used for tax planning, (therefore) the current treaty can prevail,” one of the persons quoted above told ET.
Senior officials from Netherlands also confirmed the development. The officials were talking on the sidelines of Vibrant Gujarat, the annual investment jamboree of the state government.
FPIs will see their returns from India getting impacted as a result of the amended Singapore, Mauritius and Cyprus tax treaties, and are already looking to shift their base to European jurisdictions like France, Spain and the Netherlands.
Industry trackers say status quo ante in the India Netherlands treaty could mean many FPIs could prefer the Dutch route. Dutch officials insisted that investors rooting their investment through the country are not doing it as a tax planning exercise. “There is a 25% tax on book profit and on interest,” said an official.
However, industry trackers said there could still be some benefits for the FPIs and PE investors to shift their base to Netherlands. FPIs are exempt from capital gains tax in Netherlands as the local tax is levied only on business income and not on capital gains subject to fulfilment of certain conditions.
“There could however be a 15% withholding tax when the Dutch FPI pays income to its investors, which is reduced under Dutch tax treaties so there is no complete pass-through like Mauritius. Nevertheless, some FPIs could consider moving to the Netherlands and a certainty around tax treaty could mean that some of them may take this step in the near future,” said Rajesh H Gandhi, partner, Deloitte Haskins & Sells.