FIIs, custodians ask govt to iron out tax issues

Issues pertaining to taxation of QFIs, indirect transfer discussed in a meeting

Foreign institutional investors (FIIs) and custodians met revenue secretary Sumit Bose in a meeting coordinated by officials of the Securities and Exchange Board of India (Sebi) here on Wednesday.

A source said issues pertaining to taxation of qualified foreign investors (QFIs) and indirect transfer were discussed. The meeting was held to understand the tax-related concerns of market participants.

“This was just an ad hoc meeting organised by Sebi. It was just a platform provided to FIIs and custodians to put forward their concerns,” said one of the participants of the meeting. The meeting, at Sebi Bhavan, was the first of its kind coordinated by the market regulator.

Depository participants (DPs) reiterated their reluctance to file tax returns on behalf of QFIs, said a source present at the meeting. DPs have asked the tax authorities to transfer the responsibility of filing tax returns to the QFIs themselves, the person said. According to the norms, the filing of tax returns on behalf of the QFIs is to be done by the qualified depository participants (QDPs). DPs have been against this norm, claiming the fee for managing QFI accounts was too small to warrant such a risk.

“If the QFI defaults on tax payments, the QDP will have to bear the burden of the tax, which is unfair given the pittance they earn as fees,” said a senior official with a consultancy firm. Officials of Citigroup, Morgan Stanley and UBS, along with some tax experts, were present at the meeting, said another person privy to the matter.

Market participants said this was one of the reasons why QFI investments into India were not taking off. QFIs were unwilling to file their tax returns on the gains made here and, therefore, are staying away from investments.

The other issue discussed was  the taxation on the indirect transfer of assets. FIIs at the meeting showed reservations against the imposition.

One person who attended said the revenue secretary heard them out and agreed to consider their suggestions.

“But, there would be no follow-up meeting to this,” the person said.

The government has been trying to bring in more foreign inflows into India to bridge its current account deficit. So, far this year, FIIs have pumped close to $10 billion into Indian equities.

IRONING OUT THE ROUGH PATCHES

• Revenue Secretary Sumit Bose meets FIIs, custodians, consultants and Sebi officials
• Meeting coordinated by Sebi
• Bose seeks feedback on critical market issues
• Discussion on QFI tax-return filing and indirect transfer tax
• No immediate outcome but issues taken into consideration