End of tax benefits worries French FPIs

livemint.com:

NEW DELHI : A meeting between Indian and French tax authorities on the sidelines of a recent G20 summit has set off alarm bells among foreign portfolio investors (FPIs) based in France, three people with direct knowledge of the matter said. The meeting, around potential tweaks to the double taxation avoidance agreement (DTAA) between India and France, has led to apprehension among foreign funds that India may soon renegotiate the treaty to eliminate the capital gains tax exemption. Currently, France and the Netherlands are the only major jurisdictions benefiting from a tax treaty with India that grants exemption from capital gains tax on share sales.

This comes ahead of Prime Minister Narendra Modi’s visit to Paris next week, where several new bilateral agreements will be discussed. Following the G20 meeting, Indian FPI representatives, including custodians, consultants, and lawyers, have received calls from their French clients to check if capital gains tax was on the discussion table, the people cited above said on condition of anonymity. A spokesperson for the finance ministry declined to comment, saying DTAA negotiations are confidential.

There were discussions around ‘corresponding adjustments’ under the DTAA along with tweaks to the information sharing policy," said one of the people. “However, it could not be ascertained if the capital gains tax renegotiation was part of the talks. We will get better clarity post the Prime Minister’s visit to France, where many bilateral issues will be discussed." In 2017, India renegotiated similar tax treaties with Singapore and Mauritius, ending capital gains tax exemptions.