Foreign portfolio investors will be treated on a par with FIIs for tax purposes

The Securities and Exchange Board of India (SEBI), on Tuesday, approved the SEBI (Procedure for Search and Seizure) Regulations, 2013, made on the lines of the provisions in the Income Tax Act, 1961’. This would provide detailed procedures for search and seizure by the regulator.

This would also help the market regulator execute search operations and ensure safe custody of any books of accounts or other documents that are seized, as per the Securities Laws (Amendment) Second Ordinance, 2013, said SEBI in a release after its board meeting here.

Shelf prospectus

The Ordinance conferred direct powers on SEBI Chairman to authorise the investigating authority or any other SEBI officer to search any premises where incriminating documents are lying and seize such documents for the purpose of investigation.

The board also decided to allow public financial institutions and scheduled banks, issuers authorised to make public issue tax free secured bonds, infrastructure debt funds — non-banking financial companies (NBFC) to file shelf prospectus.

Earlier, the Companies Act, 1956, had allowed only banks and public financial institutions to file shelf prospectus. However, the Companies Act, 2013, enables SEBI to specify the companies, which can be allowed to file shelf prospectus.

In case of NBFCs, the regulator has specified certain parameters to allow them to file shelf prospectus. It said that these entities would be allowed if they had listed their shares/debentures in the stock exchanges for at least three years.

It also said that these NBFCs should have a net worth of Rs.500 crore, track record of three years of distributable profits, a credit rating of not less than ‘AA-’, and no default history or regulatory action pending with the RBI, SEBI or the National Housing Bank (NHB).

To avoid fragmentation of the issues, which will affect the floating stock and thereby liquidity, it is further stipulated that only a maximum of four issuances can be made under a shelf prospectus.

Further, companies filing a shelf prospectus with the Registrar of Companies are not required to file prospectus afresh at every stage of offer of securities, within the period of validity of such shelf prospectus, that is, one year. “They are required to file only an information memorandum, containing material updations, with respect to subsequent issues,” SEBI added.

SEBI also approved the SEBI (Settlement of Administrative and Civil Proceedings) Regulations, 2013, which includes guidelines for determining the settlement terms.

However, SEBI excluded serious offences such as insider trading, from the scope of settlement. In order to impart transparency in the process, the roles of internal committees and high powered advisory committee are specifically defined and the regulations also provide for terms of settlement in monetary as well as non-monetary terms or combination of both.

SEBI also made IPO grading mechanism “voluntary” instead of “mandatory”, amending SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009.

“Considering the requests received from market participants, investor associations and Association of Investment Bankers of India (AIBI), the recommendation of the advisory committee of SEBI, and to align with the principles laid down by Financial Stability Board (FSB) on reducing the reliance on Credit Rating Agencies, the Board approved the proposal to make the IPO grading mechanism “voluntary” as against the current provision of the same being ‘mandatory’,” said SEBI.

New rules for foreign investors

PTI reports:

The government has agreed to provide similar tax treatment to foreign portfolio investors (FPIs), as available to FIIs now, SEBI said. The three categories of foreign portfolio investors — FIIs (foreign institutional investors), sub-accounts and qualified foreign investors (QFIs) — would be given similar tax treatment as available to FIIs now.

The new rules aim to bring all foreign investors under a common framework called the SEBI (Foreign Portfolio Investors) Regulations, 2013. These measures come at a time when the rupee has weakened considerably against the dollar and recently hit its all-time low levels of 60 against the American currency.

Also, FIIs have been pulling out money from the Indian debt market, which has resulted in the hardening of yields on government bonds.

As regards FPI regulations, “the communication from the Department of Economic Affairs to the CBDT and to SEBI, conveying the decision that all three categories of FPIs would be given similar tax treatment as available to FIIs presently,” the regulator said in a statement issued after the board meeting.

SEBI has earlier sought clarity from the Finance Ministry on the issue of taxability of all categories of investors. The committee, headed by former Cabinet Secretary K. M. Chandrasekhar, had recommended that “the government may consider bringing more clarity and certainty while prescribing the taxation provisions for FPIs”.

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