P-notes may take hit on new tax treaties

Besides higher tax outgo, P-note issuers are worried about operational difficulties

With the new tax treaty with Singapore and Mauritius coming into effect from April 1, inflows through participatory notes (P-notes) could see a sharp drop.

According to Securities and Exchange Board of India (Sebi) data, nearly 90 per cent of P-note investments are routed through Singapore and Mauritius, with which the Indian government has reworked tax arrangements.

According to the changed double taxation anti-avoidance agreements (DTAAs), all investments made from these jurisdictions would attract short-term capital gains as the exemptions would get removed. 

Mauritius and Singapore are favoured by entities issuing P-notes-also called offshore derivative instruments (ODIs), thanks to tax-treaty benefits, particularly non-applicability