08 november 2006

government asks sebi, rbi to prepare negative list of tax havens
mumbai: the government will ask the reserve bank of india (rbi) and stock market regulator sebi to prepare a negative list of tax havens, especially in the mauritius, to check the misuse of tax treaties.

this follows recommendation of the lahiri committee on ways of preventing entities registered in these countries from attaining the status of foreign institutional investors (fiis).

"rbi and sebi are being asked to prepare the negative list of tax havens," a note issued by the finance ministry said.

mauritius is a tax haven for fiis operating in india. many fiis operating out of mauritius misuse the double taxation avoidance agreement with india to avoid taxes on short-term capital gains as there is no capital gains tax in mauritius.

unscrupulous operators have been misusing the provisions of india-mauritius treaty to launder illegal funds and channel these into stock markets.

while the sebi regulations allow fiis to operate on behalf of clients on the basis of participatory notes (pns), the regulator has powers to ask fiis to seek details of pn holders, which are unregistered entities with the market regulator.

although the lahiri committee favoured continuance of pns, an rbi-constituted committee on rupee convertibility has recommended phasing out of these notes. the finance ministry is maintaining a status quo on pns as of now.

nearly 974 fiis are now registered with sebi and they operate thousands of sub-accounts in the stock exchanges.

07 november 2006

rbi doubles bank credit limit to indian jvs, subsidiaries overseas
mumbai: the reserve bank of india (rbi) has doubled the limit of banks for extending credit and non-credit facilities to indian joint ventures and wholly owned subsidiaries abroad to 20 per cent of their capital funds.

the rbi decision allows banks increase their lending to indian joint ventures or subsidiaries for funding their overseas expansion.

the limit of 20 per cent of the unimpaired capital funds (tier i and ii capital) from the existing limit of 10 per cent would be applicable only to joint ventures where the indian company has at least 51 per cent stake.

the decision to enhance the prudential limit was taken to facilitate the expansion of indian corporates' business abroad, rbi said in a circular to all banks.

the rbi, in its mid-term review of annual credit policy on october 31, had said that the limit on credit and non-credit facilities extended by banks would be enhanced to 20 per cent to help indian corporates expand their overseas business.

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