ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Tax Residency Certifi cates

The Untold Story

The budget proposal that a tax residency certifi cate is a necessary but not suffi cient condition to access treaty benefi ts triggered a slide in the Sensex prompting the government to issue a clarifi cation that the tax authorities in India will not go behind the TRC and question the residential status of the taxpayer. This article examines the issue of TRCs from the time of the opening up of the economy. It examines the observations of the courts and joint parliamentary committees, and international jurisprudence and argues that the Government of India in a very non-transparent manner is allowing treaty shopping to continue unabated.

The budget for 2013-14 not having delivered the expected goodies, the market was in a rather somnolent mood and moved a few points either way during the speech of the finance minister. The budget documents are made available after the speech. Going through the fine print, some experts detected yet another perfidy by the revenue authorities to block the “Mauritius route.” This time the culprit was an innocuous provision that was already there in last year’s budget documents, which said that furnishing a tax residency certificate (TRC), although a necessary condition, would not, be a sufficient condition for claiming the benefits of a tax treaty. Taking a cue from the analysts, foreign institutional investors (FIIs) started selling and the Sensex plunged by almost 300 points. The finance minister and his team went on a damage control exercise, and promised that the TRC issued by Mauritius was not in question and that a clarification would be issued soon. More of that later, but let us first understand what this TRC is and why it has become so vital an issue.

Treaty with Mauritius

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