Morgan Stanley Shifts p-note base as govt Tightens rules for FPIs

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India’s largest p-note issuer moves from Singapore to France; changes to Indo-Mauritius tax treaty could have triggered shift.

Morgan Stanley, India’s largest participatory notes (p-note) issuer, has shifted its operations from Singapore to France amid changes to the Indo-Mauritius tax treaty. According to sources, all the p-notes issued by the American brokerage starting from January 1, 2018, will be coming through France route instead of Singapore. However, the Morgan Stanley has not shut-down its Singapore operations as a substantial amount of p-notes it has issued from that jurisdiction are still active and transferring these instruments to a different location could trigger tax provisions of indirect transfers.

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This shift by Morgan Stanley comes even as the Indian government has tightened the policy framework around foreign portfolio investors (FPIs) selecting a jurisdiction purely based on tax reasons. Morgan Stanley has gone ahead with the movement even as another top foreign brokerage red-flagged the issue with the Finance Ministry in August 2016. The development brings forth several loopholes in the current regulations including the newly implemented General Anti-Avoidance Rules (GAAR).

According to data compiled by the market regulator Securities and Exchange Board of India (Sebi) in 2016, Morgan Stanley Singapore is the largest p-note issuer in the country with a market share of 14.3 percent followed by JP Morgan Mauritius with a share of 11.2 percent.


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