Jane Street case: CBDT investigating misuse of India-Singapore treaty

Jane Street has been under the spotlight since July, when the Securities and Exchange Board of India (Sebi) barred the firm from trading in domestic markets over alleged manipulative practices

The Central Board of Direct Taxes (CBDT) is building a case based on evidence against US-based trading firm Jane Street for allegedly misusing provisions of India’s tax treaty with Singapore, according to senior government officials. The board expects liability to follow once the case is established.

 

The CBDT has already collected data from advisory firm EY and brokerage Nuvama, and is expanding its data collection. A report will eventually be submitted to the finance ministry, though no timeline has been set, according to the official.

 

A senior tax official told Business Standard that the investigation is still underway, with information being gathered from several sources in India. “It is a long process to build a case. Once the case is built, the tax liability will automatically follow,” the official said.

 

An email sent to Jane Street and the finance ministry didn't elicit any response till the time of going to press.

 

Officials highlighted that the probe involves complex legal issues, including whether the “place of effective management” (PoEM) of Jane Street’s India entity was actually located overseas. 

 

This assessment could have major implications for the entity’s tax liability, since it decides whether only Indian-sourced income or the firm’s entire glo­bal income becomes taxable in India.  PoEM is a globally recognised tax concept accepted by the Organisation for Economic Co-operation and Development. 

 

Officials are also studying if the General Anti-Avoidance Rules (GAAR) can be applied. “Nothing has been finalised yet,” the official said. GAAR rules allow the tax department to deny benefits of a treaty or transaction if it is found to have been structured mainly to avoid tax payment. 

 

Jane Street has been under spotlight since July, when the Securities and Exchange Board of India (Sebi) barred the firm from trading in domestic markets over alleged manipulative pra­c­tices. The tax probe is running in parallel, focusing on whether profits from Indian trades were shifted overseas to claim treaty benefits. According to Amit Baid, head of tax at BTG Advaya, this is not just about Jane Street. It could set the tone on how India evaluates PoEM and permanent establishment (PE) exposure in the algorithmic trading space.

 

“Foreign portfolio investors (FPIs) often rely on sophisticated algorithms that actively make trading decisions, meaning the ‘mind’ of the operation effectively sits in India, even if the FPI is located in Singapore. Tax authorities may have a strong case for PE, and potentially PoEM, if control and key decision making is in India,” said Baid. From a broader perspective, the bigger the player, the greater the potential for such tax abuse. 

 

“Looking ahead, India is likely to scrutinise algorithm-driven trading, cross-border fund flows, and treaty benefits more closely. This will send a clear message that using treaties solely to claim tax advantages, without strong commercial reasons, will no longer be tolerated,” he added.