In order to escape from the increase in tax surcharge, foreign sovereign and pension funds may take the help of diplomatic channels after the government last week decided to maintain status quo on the matter, reported The Economic Times.

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People close to the development who spoke to the media said that entities including a leading Middle East government fund and three Canada based pension funds are already moving in this direction. “Some of these funds are planning to send their representatives later this month to explain the difficulties they would face due to the government’s new law…These entities provide stable flows and should be exempt from the new tax,” one of the sources was quoted as saying in the report.

This move is significant as Finance Minister Nirmala Sitharaman told parliament last week that the government will not consider rolling back the budget measures. This will seriously affect sovereign and pension funds that are mostly created by special Acts of parliament in their home countries. So unlike mutual funds or hedge funds, these entities will not be able to convert themselves into corporates since they are governmental bodies, added the report.

“Many of the sovereign funds would suffer the higher surcharge because these funds are either part of the foreign government itself or established under a separate Act and therefore not separately set up as a corporation or partnership…Also, most large pension funds would be adversely impacted because they are also set up as trusts similar to the EPFO (Employees' Provident Fund Organisation) in India,” Rajesh Gandhi, partner, Deloitte was quoted as saying in the report.