In fixing a pesky issue, the markets regulator has proposed that the apex tax body should allow foreign portfolio investors (FPIs) to name ‘authorised signatories’ while registering or renewing licenses to trade on Indian exchanges.
The suggestion, conveyed last week, is an easier alternative to an onerous new income tax (I-T) rule requiring foreign investors to name ‘authorised representatives’ (AR) or ‘representative assessees’ (RA).
However, employees of offshore asset managers, or local professionals like chartered accountants and lawyers are reluctant to be named as AR/RA in the common application form that FPIs file with Sebi for permanent account number, bank and stock demat accounts.
The reason is simple: amid fears of getting exposed to possible tax liabilities, none of them want to be identified as ‘representative’ of a foreign investor in the tax office records.
With CBDT unwilling to roll back the rules, a way out of the stand-off could be to name them as ‘authorised signatories’ instead of ‘representatives’.
Professionals, partners of large consultancy houses, and lawyers would be far less hesitant in being authorised signatory because it entails a narrower role of signing and executing documents-unlike an AR/RA who is expected to act as a proxy in negotiations and legal proceedings. “Also, an authorised signatory, who is assigned via power of attorney or board resolution, has no obligation, and may not be asked to submit ID proof,” said a person aware of the developments.A Sebi spokesperson did not comment on the matter.
Market regulator tells central direct tax body to let FPIs authorise ‘signatories’ instead of ‘representatives’
Be it dividend earnings or stock trading profits, FPIs have to pay tax before they can remit funds overseas. Still, a fund may face tax claims later if the I-T department suspects that less tax was withheld or a foreign investor took undue advantage of treaty benefits. Apprehensions are that in such situations it could be the AR’s responsibility to deal with the taxman.
“With FPIs selling and FPI registration processes being streamlined, SEBI understandably wants to resolve the issue. In fact, the KYC process for Category-1 funds has been simplified. So, it’s a retrograde step when a fund employee, acting as an AR, is asked to share his passport copy. On one hand, FPI employees, typically foreign citizens or non-residents, don’t want to give passport details. On the other hand, FPI advisors and custodians here aren’t ready to be AR/RA,” said another person.
On April 15, ET had reported that during an interaction with FPIs, a senior Sebi official said there was “lot of noise around the issue” in the absence of clarity “on the obligations of the person whose name is given in the form.” While some in the tax fraternity believe that ARs (unlike RAs) may not be held liable for tax defaults, the dilemma continues to linger.