Centre mulling means to plug shell company route

But given the strong lobbying by different interest groups, the process is proving to be difficult. The Direct Tax Code, the omnibus redrafting of Income-Tax Laws, was supposed to include the changes, but the tabling of the Code has been pushed back from the current monsoon session of Parliament.

One of the alternatives that have been explored is the concept of controlled foreign corporations to plug the dichotomy between legal and beneficial ownership. The Finance Ministry is clear that the passage of the code will have to be followed by blocking the misuse of tax treaties. It has also been looking at other means to plug revenue leakages.

The move would also be in tandem with global practices. The OECD recommends that governments should ask for upfront disclosure of beneficial ownership and control information on the formation of the corporate vehicle, to prevent tax evasion by companies.

Singapore, too, has such an anti-tax avoidance clause in its tax structure, which lays down that a company must be of substance in order to get tax benefits through double-tax avoidance agreements. However, tax consultants feel that such a provision can only be used prospectively as at present, Indian law only recognises legal ownership.

They explain that legal owners are those who own the “legal title” or deed to a company, security or financial instrument and are so recognised under the law. A beneficial owner, on the other hand, is the real or economic owner of the company or security and enjoys the benefits of owning it, regardless of in whose name the title is or the legal owner.