• Forex Trading

For instance, seller must issue/transfer foreign securities equivalent to the amount of total consideration upfront; full consideration that has to be paid must be as per pricing guidelines, etc. The language of the new rules suggests that a resident Indian can make such an investment https://1investing.in/ without prior RBI approval as long as the entire structure doesn’t have more than two layers of subsidiaries, Moin Ladha, partner at Khaitan & Co., opined. India Inc.’s overseas ambitions – new rules specify conditions for direct & portfolio investments, and financial commitments.

This was also debated in the Report of the High Level Advisory Committee constituted by the Ministry of Commerce and Industry, Department of Commerce, Government of India in view of the stringent regulations and controls related to capital inflows and outflows to prevent round-tripping. One of the hurdles discussed was the prohibition under the existing norms that did not regard FDI through ODI as a bona fide business activity and how it stifled legitimate and bona fide business purposes. It was remarked that the baggage of round-tripping cannot be used to stifle a major sector any more using the risk of a traffic accident to stop construction of a key highway and that technology, KYC and international coordination could help alleviate concerns on such issues. It suggested thresholds permitting ODI-FDI structure and also certain exemptions for listed entities. This was debatable even back then for reasons as discussed in our article which can be read here. If the definition given in the OI Rules is compared with that in sec. 2 of the CA, 2013, every other word is the same as in the latter definition, except for the 10% numerical threshold in case of voting agreements.

Similarly, Indian entities considering outbound investments faced a requirement of prior RBI approval if the target had any investment in India. Authorised dealer banks, or banks authorised by the RBI to deal in foreign exchange transactions, have called an industry meeting later this week to discuss these interpretations and decide future course of action, people aware of the development told ET. However, certain market participants follow a more conservative interpretation that the investment into the US company will be counted as the first layer and hence the Singapore entity becomes second layer and Indian unit becomes the third layer. The Global Depository Receipts and Participatory Notes (P-Notes) are some of the other routes that have been used in the past. Conditions that need to be fulfilled before making financial commitments by way of debt, guarantees, pledge etc. Currently, an Indian entity is permitted to give loans or guarantee in favour of an offshore entity in which it has equity participation.

Similarly, the norms for incorporating a subsidiary outside India is mainly governed by provisions of CA, 2013 and also ODI norms for investment in the non-debt instruments. Additionally, there is a concept of restriction on layers of subsidiaries, prescribed under CA, 2013 and also under the new regime, which has raised cause of concern as well as confusion among India Inc., which is intended to be addressed by the author in this article. An important points to note is that the term subsidiary is different from what is understood in normal parlance. The term ‘Subsidiary’ is defined in the new ODI rules as a foreign entity having « Control ». Control in turn entails situations when the entity being considered have control over the management or a right of more than 10% in the said subsidiary. Why the threshold for determining 2 layers is so low, or why the layering has been restricted to only 2 levels has not been answered in the regulations.

• First, deferred payments have now been permitted for overseas direct investments, subject to certain conditions.
• The concept of « round tripping » has not been defined or laid down in any laws in India.
• RBI therefore over time restricted investments from Foreign Action Task Force non-compliant jurisdictions including investments in NBFCs and Payment Systems Operations.
• The foreign arm borrowed about $50 million, which was then invested in the Indian company.
• For example, suppose an Indian entity wants to invest in a US-based company that has a Singapore subsidiary and an Indian step-down subsidiary.
• An advantage for the Indian businessman parking his money in the Mauritius formed company is that tax there is significantly low.

Besides, Prof Rao says the RBI’s attempt to curb round-tripping through FDI/OFDI routes is extremely inadequate as it focuses on subsidiaries while ignoring minority equity participation. The compounding cases under the Foreign Exchange Management Act of do indicate non-reporting or how to buy bonds in india delayed reporting by many, including large companies, for both FDI and OFDI. It found India among eight countries with a higher correlation (about 0.7 for India when the average correlation was 0.51), reflecting « in part hedging of currency and country risks by foreign investors ».

You got 30 Day’s Trial of

SAR is a document filed by banks and financial institutions to report suspicious activity to the USA FinCEN. With reference to the office of the Attorney General of India, Which of the following statements is/are correct? In the performance of his official duties, the Attorney General has the right of audience in all courts in the territory of India.

For the above reason, investments which involved round tripping were not allowed without government approval. If the RBI comes across such investments, notices will be issued to the relevant Indian parties to unwind the structure and pay the relevant penalty. KSK Energy, is incorporated and registered in Mauritius, and is a wholly-owned subsidiary of KSK Power Ventur plc, an Isle of Man incorporated entity that is currently listed on the London Stock Exchange. Our individual Promoters, Mr. S.Kishore and Mr. K.A. Sastry, prior to setting up the Company, have been involved in the development of power projects in various advisory and consultant roles. The company is on trial at the National Company Law Tribunal as a non-performing asset.

Besides, the Financial Intelligence Unit-India (FIU-IND) had also initiated a fact-finding exercise related to HSBC’s operations in India and its compliance to AML and counter financing of terrorism regime. Still, the banks could face action on the negligence ground if allegations of wrongdoing come true, a senior official said, while refusing to divulge the identity of the banks and their Indian clients. According to reports, two of these three banks are from Switzerland and one is from the UK, and they might not be involved directly and it could be the case that their employees were dealing with the clients directly without keeping the banks in the loop. AIFs aim to pool funds from various categories of investors and invest monies from that corpus as their pre-determined policies of the respective AIF.

SynopsisMany investors have reached out to the RBI claiming that the regulation is creating a spectre of harassment.

It is also part of the information that we share to our content providers (« Contributors ») who contribute Content for free for your use. You’ll only need to do it once, and readership information is just for authors and is never sold to third parties. In recent past SEBI, Supreme Court and Government have initiated measures either to bring back black money or to curb its circulation.

It will be implemented countrywide through the Pradhan Mantri Garib Kalyan Yojana to benefit vulnerable groups, particularly migrants and informal workers. It is pivoted towards migrants, unorganised workers, informal sector, and creating an integration of the existing infrastructure of safety nets like the Public distribution system, Jan Dhan, Aadhar & Mobile . The SC should not be afraid of delineating the ambiguities and has to handle the exercise delicately.

Overseas Investment Rules Bring Round Tripping Relief, Commercial Flexibility; But Frown On Startup Bets

Simply put, the term « round tripping » has been used to refer to a structure in which an Indian person invests in an offshore entity which further invests, or already has investments, in India. If the second interpretation holds true and the US entity is unable to route its investments through a more tax friendly jurisdiction like Singapore or Netherlands, the entities could end up paying double taxation, experts said. For example, suppose an Indian entity wants to invest in a US-based company that has a Singapore subsidiary and an Indian step-down subsidiary. The new rules take away this leveraging ability for investments in overseas startups.

This decision of RBI related to round-tripping is creating problems for several Indian resident individuals who had sent money under the LRS scheme and invested or are looking for fresh investment in overseas funds and Indian companies who are looking to acquire/acquired foreign companies. Overseas direct investment stood at $1.41 billion in June 2022 compared to $3.43 billion in June 2021, as per the Reserve bank Of India’s data. Are the top five destinations which receive investments from Indian entities, with financial, insurance, business services, manufacturing, and wholesale/retail trade as the top sectors of choice. Shell companies are typically corporate entities which do not have any active business operations or significant assets in their possession. The government views them with suspicion as some of them could be used for money laundering, tax evasion and other illegal activities. What does this entail for India and the investors making investments in India through such structures?

Monthly Digital Access

Only in that case, it was to be considered as a contravention of serious/ sensitive nature. That means, it was proposed to have no restriction on bona fide business transactions resulting in FDI ODI structure. ET had reported on August 27 that the ED had started questioning several resident Indians about downstream investments made by foreign companies where they hold equity stakes. The ED notices come months after the income tax department questioned the same set of investors on these investments under the provisions of the legislation seeking to curb black money. In another instance, an Indian promoter had set up a company in the British Virgin Islands about 10 years ago and transferred around ?

Over 1.5 lakh died in 4 lakh road accidents in 2021: Govt report

Then transfer all its assets to that country, invest back from that country into India, make a profit but not pay a penny of tax. With the transition to a market-based system for determining the external value of the Indian rupee the foreign exchange market in India gained importance in the early reform period. Many investors have reached out to the RBI claiming that the regulation is creating a spectre of harassment.

The FinCEN files identify at least USD 2 trillion in transactions between 1999 and 2017 flagged as possible evidence of money laundering or other criminal activity by compliance officers of banks and financial institutions. Mauritius, often accused of being a route for round-tripping of funds by Indians, today conveyed to Indian government that it was ready to support its Special Investigation Team to unearth black money. In 2019 a report was issued by the High-Level Advisory Group , constituted by the Ministry of Commerce and Industry of the Indian Government, to assess the global environment and make recommendations for boosting India’s share and increasing importance in global merchandise and services trade. The HLAG in its recommendation while dealing with the issues related to round tripping laid down that « the baggage of round tripping cannot be used to stifle a major sector any more than using the risk of a traffic accident to stop construction of a key highway ». Recommendations were made in the Report for amending the law to introduce the aspect of round tripping in the Indian regulatory framework. RBI therefore over time restricted investments from Foreign Action Task Force non-compliant jurisdictions including investments in NBFCs and Payment Systems Operations.

This BVI-based company later invested around Rs 500 crore in listed and unlisted Indian companies. “The company was told to sell the shares and pay capital gains tax,” said another person with direct knowledge of the matter. Lowering the threshold for determining step down subsidiaries will have far reaching implications.