Corporate Watch : March 2, 2012 : Back to its old ways? CDC's new 'development maximising' investment registered in tax haven

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Last June, the Department for International Development secretary Andrew Mitchell told parliament he intended to “reconfigure” the Commonwealth Development Corporation, the much-criticised investment company owned by the DFID, to “radically increase its development impact”. “It will be a development-maximising, not a profit-maximising, enterprise,” Mitchell said, stressing its work would be “as transparent as possible” and promising it would not make new investments “in or through harmful tax regimes”.

Soon after, the CDC announced it was giving $50m to Pragati, a fund being set up by ex-Credit Suisse and RBS banker Narayanan Shadagopan, to invest in up-and-coming businesses in the “eight poorest states in India”. It said one of the “impacts” of this investment would be “the generation of taxes and other financial revenues to the local governments”.

So Corporate Watch was surprised to find this new, tax-generating investment fund is domiciled in Mauritius, a popular 'offshore financial centre' for investors looking to avoid Indian tax and unwanted scrutiny!

Mauritius has a 'double taxation' treaty with India, freeing companies registered in the African island from paying Indian capital gains tax on shares sold in Indian companies. Billed as a way to ensure investors are not taxed twice on the same income, in practice it allows them to avoid paying anything at all as Mauritius does not charge capital gains tax. This has led to 40% of foreign direct investment in India being routed through Mauritius, which also does not require resident companies to make their accounts public, making it very difficult to find out exactly how they are organising their financial affairs.

A spokesperson for the CDC confirmed to Corporate Watch that, while the companies it invests in will adhere to “the tax requirements of India”, Pragati itself will be taking advantage of the double taxation treaty as its investors will expect it to be domiciled in a jurisdiction that “permits the tax neutral pooling of capital and avoids double taxation”.

But so far, the only other investment in Pragati is the $20m from the International Finance Corporation, which is part of the World Bank Group and supposedly also more concerned with “development maximising” than “profit maximising”. Pragati aims to raise between $80m and 100m in total, so the CDC's $50m contribution will make it by far the biggest single contributor. What the CDC is really saying, then, is that it expects Pragati to be domiciled in Mauritius, somewhat undermining Andrew Mitchell's previous insistence that the CDC will be concerned with the “generation of incomes and tax revenues”.

The CDC's relaxed attitude to Pragati's tax affairs contrasts sharply with the DFID's claims it has helped reform the tax systems of some of the same states Pragati will be investing in. In its submission to a parliamentary enquiry last year investigating its India programme, the DFID boasted its work with the governments of Orissa, Bihar and Madhya Pradesh had helped to “expand the tax net”.

Which may explain why its own finance institution seems to know exactly where the holes in that net are.

See also:

Profiting from 'peanuts': the DFID's new plans in India

February 8, 2012

Dodgy Development: Films and interviews challenging British aid in India

December 15, 2010

DFID helps Bangladesh 'understand the private sector'

July 15, 2011

'Educating' tribal leaders about the 'benefits' of development in Ghana

August 19, 2010

Dodgy Development V: Power to the people?

May 05, 2010

Dodgy Development IV: 'A DFID colony'

May 05, 2010