Holding out on holding companies self-defeating: Analysts

Mar 10 2014, 01:37 IST
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The restrictive draft norms, experts say, limit investors’ options in the event of disputes. The restrictive draft norms, experts say, limit investors’ options in the event of disputes.
SummaryThey caution that not recognising the holdco route might create a perception that doing business in India is difficult.

investor was wide enough to cover a holdco. “If the definition is narrowed, and the investor has opted for the holding company route to avail of tax benefits, he will weigh the benefits of the treaty against that,” Desai said.

Sumant Batra, a consultant to IMF and World Bank, questioned the government’s rationale for disallowing the holdco route, asserting the move would lead to loss of foreign investments in a big way.

“The government should understand that these channels are perfectly legal and the way to approach it is to demand disclosures to ensure more transparency. Not offering an option is not the right way,” Batra told FE.

The government’s move to insist that foreign investors take recourse to local legal options before seeking international arbitration, Titus said, won’t work in India although it might be an international convention.”Litigation takes a long time in India and if this clause is incorporated, the risk factor would increase tremendously. As it is litigation in India is protracted and if this becomes a reality, the situation would become even worse as the number of cases would rise,” he explained. Currently, BIPAs allow companies to explore both local and international remedies concurrently.

Batra also decried the move to first exhaust local judicial remedies before moving for international arbitration. “Arbitration is an alternate process. It is shorter in time and bring about clarity through its pronouncements. The only flip side is that it is very expensive,” he said.

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