Ambiguity with thin cap norms: Private credit players risk significant tax leakage

  • Accurate reading of thin capitalization norms is highly relevant to maximize IRRs, especially in asset heavy sectors
  • Currently, norms interpreted such that sometimes the entire interest paid to foreign related parties is disallowed for the target (as expense)…

    Private Credit: Interest on NCDs recharacterized as dividends 

    • Tax authorities recharacterized interest income on NCDs as dividends
    • Interest recharacterization has not taken place under GAAR
    • Investors can prevent such mischaracterization by demonstrating the nature of the underlying instrument, periodicity of payments, maturity date, management rights,

      Denial of tax treaty benefits: Blueprinting defence strategies for PE funds – A tax litigation perspective

      • Revenue has issued reassessment orders to several global PE/VC funds denying
        tax treaty benefits to grandfathered investments alleging treaty shopping through Mauritius and Singapore between AY 2013-14 and 2015-16

      • Substantial tax, interest, and penalty has been levied invoking judicial anti-avoidance principles based on a supposed lack of commercial substance in these jurisdictions…

        Top 5 Tax Considerations When Structuring Debt Investments in India

        • Recent developments in the Indian tax regime have brought India closer to global
          norms though hybrid instruments that have come under increased scrutiny

        • GAAR provisions have enabled tax authorities to examine the commercial substance of transactions, underscoring the importance of purpose, pooling, and people…