Aberdeen drags Centre to court on demand for MAT

Mumbai, May 4: Aberd- een Asset Management has filed a legal challenge against a tax claim in India, the latest twist in a dispute between foreign fund management groups and the government over minimum alternative tax.

Uncertainty around the so- called minimum alternative tax ( MAT) on foreign asset managers’ past income has unsettled investors, contributing to sharp falls in India’s stock market.

It has also dampened hopes that Prime Minister Narendra Modi would usher a period of wideranging reforms. Mr Modi’s government has enjoyed an extended honeymoon with foreign investors who have poured $ 50 billion in new investments into the country since the election last May.

Aberdeen filed its challenge at the Bombay High Court in response to a claim from Indian authorities demanding MAT payment of “less than $ 50,000” for one of its funds.

Mr Hugh Young, Aberdeen’s Asia managing director, said the firm had decided to appeal the tax demand even though the litigation costs would likely exceed the penalty demanded by Indian authorities, calling it an issue of principle.

“We’ll probably end up spending a lot more on the legal challenge than the tax demand, but the point being that if you receive these and don’t challenge you can end up receiving a lot more,” Mr Young said.

Mr Young said that the claim affected one of its global funds investing in India but not its two biggest India- focussed funds.

Aberdeen’s actions mark the most high profile public action by a foreign investor against the MAT. Last week, five foreign investors had challenged the tax claims at the Bombay High Court, which is expected to hear the case on May 6.

According to a report, nearly 20 investors are planning to file a similar petition in the High Court.

The tax has in the past been applied to foreign companies but foreign asset management companies did not pay it.

The government has said that from April onwards the tax will no longer apply. But it has also refused to make that retrospective, leaving foreign funds liable to pay the tax for previous years.