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The Securities and Exchange Board of India (Sebi) on Thursday proposed tighter rules for participatory notes (P-Notes) in an attempt to curb the potential for money laundering through this investment route, popular among rich individuals and hedge funds.

P-Notes, or off-shore derivative instruments (ODIs), are instruments issued by registered foreign portfolio investors (FPIs) to overseas investors who wish to invest in Indian stock markets without registering themselves with Sebi.

By their very nature, P-Notes are seen as an opaque route for investment which leave room for round-tripping—the practice of money stashed away overseas by Indians returning home through tax havens in the garb of foreign capital—and money laundering.

According to a Sebi statement, the transfer of P-Notes will be restricted and allowed only after prior consent of the issuer. This means that for every downstream transfer of a P-Note, prior consent of the issuer would be needed.

Additionally, transfer of a P-Note will be allowed only to a pre-approved list of subscribers.

One of the reasons why a majority of the P-Note investment comes from Singapore and Mauritius could be that the FPI, which is the P-Note holder does not have to pay any Indian capital gains tax if it is based in Singapore or Mauritius under these treaties

The tax treaty with Mauritius prevents India from taxing capital gains of investors based out of Mauritius.

Since there is no capital gains tax in Mauritius, these investors pay no capital gains tax in either country. Singapore has a similar treaty with India. Singapore also does not have a capital gains tax regime.

P-Notes cannot be issued to a resident of a country identified by the inter-governmental Financial Action Task Force as being lax on money laundering and terror financing regulations.

ROUND TRIPPING is a phenomenon by which Indian individuals and companies avoid tax by sending funds abroad and then bringing them back on to home soil via Mauritius-based companies.

Much of the investment into India via Mauritius over the last 15 years is believed to have been by CORRUPT Indian residents—all BIG FISH

Signed in 1983, the Double Taxation Avoidance treaty between the two countries made Mauritius, which taxes capital gains at near-zero rates, an attractive “post box address” for foreign investors to route investments into India .

Indians who evaded taxes set up shell companies in Mauritius, concealing identities and channeling cash or stock market investments through “round tripping” and “participatory notes”

The Securities and Exchange Board of India (Sebi) tightened the norms for participatory notes (P-notes) in order to check misuse of these instruments in round-tripping and money laundering.

Now offshore derivative instruments (ODIs) issuers need to adhere to the Indian know your customer (KYC) norms and the subscribers will have to take prior permission from the ODI issuer in case of transfer of the instruments to another offshore investor.

Revision of Mauritius treaty has caused India-bound investments now getting re-routed from other tax-friendly jurisdictions like Singapore.

In the financial year ending March 2016, Singapore overtook Mauritius ($8.3 billion) and reported highest FDI inflow ($13.6 billion) into India. This higher investment from Singapore is due to revised treaty with Mauritius.

Singapore’s investment of $5.98 billion has over taken Mauritius’s investment of $4.85 billion as the single largest investor for the year 2013-14.

The Indian Government has also reached an agreement with Switzerland where the latter will share complete information on investments from Indians in Switzerland from 2019..

P-Notes are instruments issued by registered foreign institutional investors to overseas investors. While the FPIs are registered with the Securities and Exchange Board of India (SEBI), the overseas investors investing in P-Notes are not registered with the market regulator, and thus their identity is not known to the authorities..


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An Indian sending unaccounted money to tax havens through hawala transaction and the hawala operator in the tax haven investing that money into the P notes issued by an FPI registered with SEBI. In this way, unaccounted money can be converted into legitimate source of income.

P-notes are basically 'hot money' which can be pulled in and out at any point of time increasing the volatility in the market. Terrorists can use these as instruments for their transactions as there is complete anonymity about the final receiver of P-notes or they can also use it as a tool of financial terrorism by increasing the volatility .

P-notes are often criticised for evasion of capital gains tax. India’s biggest source of FDI is India itself, money departing on a short holiday to a tax haven and then routed back as FDI. The bulk of P-note investments in the Indian stock market were from tax havens such as Cayman Islands.

Tax havens such as Mauritius and Singapore thrive parasitically, they feed on substantive economies like India

http://www.oecd.org/ctp/harmful/43757434.pdf

http://www.oecd.org/ctp/exchange-of-tax-information/42469606.pdf

http://www.oecd.org/ctp/exchange-of-tax-information/2082215.pdf

INDIA WAS RULED BY AN ITALIAN WAITRESS , WHO WAS "SUPER PRIME MINISTER"

SHE COULD NOT EVEN UTTER THE SPELLING OF " E C O N O M I C S "..


SHE CLAIMED TO HAVE GRADUATED FROM CAMBRIDGE UNIVERSITY , WHILE THE TRUTH IS WAS A MERE WAITRESS IN THAT TOWN

THIS IS LIKE A WAITER IN A MUMBAI RESTAURANT CLAIMING THAT HE IS A BTECH FROM IIT MUMBAI.

We know the names of corrupt politicians who HOWLED IN PROTEST whenever there was an effort to ban participatory notes (P-Notes), or when we tried to ascertain their beneficial ownership.

We know that the money being brought into India was actually just Indian black money that had earlier been sent out of the country through the hawala route . We know who these Indian politicians are.

A very large proportion of money invested in the markets by FIIs was funded through P-Notes. The bastards had the power to affect the flows and even crash the stock market

The CAD current account deficit is under control now. India is now attracting a lot of FDI which, by definition, isn’t prone to flowing out as quickly as FII money

With a global crackdown on not just tax havens but also on unaccounted flows, India has found it easier to increase the know-your-customer norms for FIIs—so while investors are still allowed to come in through P-Notes issued by well-known fund managers, the details of the beneficial ownership has to be made available to Sebi on a regular basis.

Over a period of time, this has resulted in Sebi knowing the ownership details of all P-Note holders in the country

We don’t want all eggs in one basket. A Special Investigation Team (SIT), MUST be set up to track black mone and MUST ask Sebi to give it all details on the beneficial ownership of P-Notes.

SIT MUST correlate this data with the income/wealth-tax returns of P-Note-holders and see if there are undeclared incomes.

WE KNOW THE RAMPANT CORRUPTION IN SEBI—

Capt ajit vadakayil
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