Topics Covered: Money laundering related issues.
What is Round-tripping?
What to study?
For Prelims: What is GAAR? Meaning of round tripping?
For Mains: Concerns associated and ways to address them.
Context: In a major relief for New Delhi Television Limited (NDTV), the Supreme Court has quashed an income tax re-assessment notice issued by revenue authorities against the premier news broadcasting company.
What’s the issue?
Income Tax department had accused NDTV of “round-tripping” finances in connection with a July 2007 issuance of step-up coupon bonds amounting to $100 million through its U.K. subsidiary.
What is round tripping?
Round tripping refers to money that leaves the country though various channels and makes its way back into the country often as foreign investment. This mostly involves black money and is allegedly often used for stock price manipulation.
Round tripping is often done through a series of transactions that don’t have any substantial commercial purposes, which makes it fall within the trappings of GAAR.
How does the money return to India?
It could be invested in offshore funds that in turn invest in Indian assets. The Global Depository Receipts (GDR) and Participatory Notes (P-Notes) are some of the other routes that have been used in the past.
Why round tripping happens?
There are a number of observed factors that promotes round tripping. Mainly, Tax concessions allowed in the foreign country encourages individuals to park money there and then reroute it.
Sources: the Hindu.