RBI, ED Probes Into Suspected Round Tripping Operations Alarm Indian Companies Looking At Overseas Investments

The Reserve Bank of India (RBI) and the Enforcement Directorate are in the process of investigating several Indian companies which have received investments from their foreign subsidiaries or affiliates which are suspected to be round-tripping operations.

Recently, the RBI and the ED also issued notices to some individuals who have invested in Indian companies through investment arms registered abroad.

These probes have alarmed Indian firms looking for overseas investments, since much of such investments are genuine, especially since the government has plugged most of the loopholes used earlier for routing money through foreign jurisdictions.

The government had recently amended the tax treaty with Mauritius. Regulations are in place regarding place of effective management (POEM) due to which many concerns around round-tripping have been addressed.

The government had amended the tax treaty with Mauritius in 2016, removing the tax arbitrage on capital gains. Under POEM rules, overseas subsidiaries are treated as domestic entities for tax purposes if they are controlled and managed from India.

However, the RBI and ED have issued notices as well as questioned both individuals and firms.

Incidentally, the ED notices come months after the income tax department questioned investors about on these investments under the provisions of the legislation seeking to curb black money.