India - Portfolio Investors Shifting Base to Europe

Due to amended tax treaties with Singapore, Mauritius and Cyprus, Foreign Portfolio Investors (FPIs) are looking to shift their base to European jurisdictions such as France, Spain and the Netherlands, the Economic Times reported. 

Tax Treaties

In 2016, the Indian Government amended the tax treaties with three major countries that amended taxation of capital gains obtained in India. One such treaty was signed with Cyprus on June 13, which provides for source-based taxation of capital gains arising from alienation of shares. It implies that capital gains made on investment in shares of Indian companies will be taxed in India. However, some of the European jurisdictions continue to offer tax exemptions, which prompts investors to shift their base. 

Shifting to Europe

According to the people close to the development, many FPIs are seeking the opinion of their tax advisors and are analyzing the European jurisdictions for potential change. In some cases, some of the smaller FPIs (with a fund size of around $200 million) have already finalized plans to shift base to Europe, the Economic Times reported.

However, experts also argued that shifting to European jurisdictions may just be a temporary fix as the Indian government could deny treaty benefits from April 2017 under GAAR (general anti-avoidance rule).

Sources: Economic Times, Cyprus India DTA, Singapore India DTA, FT, Forbes

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