Foreign Investors Challenge India’s Minimum Alternative Tax

Aberdeen Asset Management, Europe’s largest listed fund house, filed its petition May 2, 2015, at the High Court of Bombay, confirming that it planned a legal fight against India’s Minimum Alternative Tax (“MAT”). Historically foreign funds, like Aberdeen, have been exempt from this form of taxation. Recently, tax inspectors have begun to issue demands claiming international funds are now liable for the charge.

India first introduced MAT during the 1990s to ensure domestic businesses paid a minimum level of tax, very similar to the United States Alternative Minimum Tax (“AMT”). Law firm Khaitan & Co has said that creating a distinction between investors when applying MAT could be unconstitutional. Bijal Ajinkya, a partner at Khaitan & Co, states that, “It’s creating a class in a class of certain investors which is not permissible under the constitution itself.”

Aberdeen’s challenge will be watched closely by hundreds of other funds operating in India. Hugh Young, Managing Director in Asia for Aberdeen notes that, “In our case the demand is small, but it is the principle.” Young continued to add that the petition is also a duty to their clients, but also that if it not challenged there could be exposure to much more in the future.

Indian Finance Minister, Arun Jaitley, alarmed many with remarks that India would seek to raise as much as Rs400bn by levying MAT on foreign investors. The government said it planned to press ahead with historical MAT claims that date back roughly over the past five years, which leaves hundreds of foreign funds worried that they could face fresh claims.

If you have any questions, please contact your WithumSmith+Brown professional.

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