Sebi seeks additional info on FIIs' structure

Market watchdog the Securities and Exchange Board of India (Sebi) today sought detailed information from foreign institutional investors (FIIs) on their holding structures and account holders, a move apparently aimed at curbing routing of Indian money back into the country through overseas entities in order to avoid paying taxes.

"To ascertain the constitution of FIIs and their sub-accounts, it has been decided to gather additional information pertaining to their structure," the Sebi said in a circular.

While the existing FIIs are to provide the details of their constituents latest by September 30, all fresh FII applications seeking licence from April 7 are required to attach the structure details.

"All the existing FIIs and sub-accounts who are already registered as on April 7, 2010, shall provide the ... declarations and undertakings on or before September 30," the circular said.

An FII will now have to disclose its holding structure on whether it is a protected cell company (PCC), segregated portfolio company (SPC) or multi-class share vehicle (MCV) satisfying broad-based criteria set by the market watchdog.

"This move is like a retrospective amendment to the laws of the country. It will pose serious challenges to some of the existing FIIs and sub-accounts as they will have to either restructure themselves or divest their portfolios to comply with the Sebi requirement," said KPMG's financial services leader for tax practice Punit Shah.

"The idea behind the move could be to curb round tripping or money laundering issues. This measure, however, may not help. For that, RBI's exchange control regulation can be more effectively used," Shah said.

He said according to the order, only broad-based entities are eligible to be registered as FIIs/sub-accounts.