France Might Be A New Tax Haven For Investors in India

During a meeting with financial ministry officials in India, global financial giant Citi pointed out that foreign funds and global banks are taking advantage of India’s treaty with France to escape tax. India might soon review its tax treaty with France to address issuance of participatory notes in France, reports The Economic Times.

Background: Treaties with Mauritius and Singapore

From the early-nineties onwards, for more than two decades, roughly 40% of the total accumulated Foreign Direct Investments into India and the net inflow of Foreign Institutional Investments into Indian stock markets have been routed through Mauritius. In the last years, the Indian government took several steps to tighten tax treaties with Mauritius and Singapore.

Issuing Participatory Notes In Paris

Several leading foreign portfolio investors have set up shop in Paris to attract offshore investors and issue participatory notes (derivatives sold to foreign investors keen to trade in Indian stocks) in the recent months. Citi is understood to have taken a decision to refrain from using its Paris office to issue PNs and sell Indian equity, the Economic Times reported.

“I believe that Citi has taken a stand that this is only a temporary window and selling PNs from Paris would be against the spirit of regulation… I suppose they believe that it could be a matter of time before India reviews its tax treaty with France,” said a senior lawyer familiar with the developments. 

Sources: The Economic Times, Money Control, CMIE

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