Saturday, June 04, 2011
Redemption of Indian Depository Receipts (IDRs) into Underlying Equity Shares
CIRCULAR
CIR/CFD/DIL/3/2011 June 03, 2011
To
All Stock Exchanges
All Depositories
All Registered Merchant Bankers
All Registered Registrars to an Issue/STA
All Registered Custodians
Dear Sir/Madam,
Sub: Redemption of Indian Depository Receipts (IDRs) into Underlying Equity Shares
1. In order to facilitate foreign issuers to raise funds from the Indian capital markets through IDRs and enable investors in the domestic market to have investment opportunities in the securities of major multi-national companies listed on welldeveloped markets, a legal framework was created by the Ministry of Corporate Affairs (MCA), Reserve Bank of India (RBI) and SEBI.
2. Pursuant to the same, Standard Chartered PLC came out with its IDR issue in May 2010 and the said IDRs have been listed on BSE and NSE on June 11, 2010. In terms of disclosures in their offer document on ”ability to withdraw shares” from the IDR Facility and to deposit further shares into the IDR Facility, it has been stated as under:-
“Pursuant to the terms of the RBI Circular, IDRs are not redeemable into underlying equity shares before the expiry of a one-year period from the date of issue of the IDRs. The SEBI Regulations and the RBI Circular state that automatic fungibility of IDRs is not permitted. Therefore, fungibility of IDRs into the underlying Shares would be permitted only after the expiry of the one year period from the date of issue of the IDRs and subsequent to obtaining RBI approval on a case-by-case basis. Further, two-way fungibility (the ability to purchase existing Shares on the London Stock Exchange and/or the Hong Kong Stock Exchange and deposit them into the IDR programme) is not currently permitted. Additionally, in terms of the RBI Circular, at the time of redemption/conversion of IDRs into underlying shares, the Indian holders (persons resident in India) of IDRs are required to comply with the provisions of the Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations, 2004.”
3. Since the one year period is nearing completion, it has become necessary to put in place, the framework for redemption of IDRs.
4. The relevant legal/regulatory provisions of fungibility of IDRs are as under:-
Rule 10 of Companies (Issue of Indian Depository Receipts) Rules, 2004:-
“Procedure for Transfer and redemption of IDRs:-
A holder of IDRs may transfer the IDRs or may ask the Domestic Depository to redeem these IDRs, subject to the provisions of the Foreign Exchange Management Act, 1999 and other laws for the time being in force.”
RBI’s circular dated July 22, 2009:-
“Fungibility:-
Automatic fungibility of IDRs is not permitted.
Period of redemption:-
IDRs shall not be redeemable into underlying equity shares before the expiry of one year period from the date of issue of IDRs.”
Regulation 100 of Chapter X of SEBI (ICDR) Regulations, 2009:-
“IDRs shall not be automatically fungible into underlying equity shares of issuing company.”
5. The extant regulatory frame work does not permit fungibility but only redemption. Therefore, allowing redemption freely in the absence of two way fungibility could result in reduction of number of IDRs listed, thereby impacting its liquidity in the domestic market.
6. In view of the above, it has been decided, in consultation with the RBI, that:
a. After the completion of one year from the date of issuance of IDRs, redemption of the IDRs shall be permitted only if the IDRs are infrequently traded on the stock exchange(s) in India.
Explanation- For this purpose, IDRs shall be deemed to be “infrequently traded” if the annualized trading turnover in IDRs during the six calendar months immediately preceding the month of redemption is less than five percent of the listed IDRs.
b. The issuer company shall test the frequency of trading of IDRs on a half yearly basis ending on June and December of every year.
c. When the IDRs are considered “infrequently traded” on the above basis, it shall be the trigger event for redemption.
d. The issuer company shall make a public announcement in an English and Hindi language newspaper with wide circulation in the prescribed format (including brief details about the trigger of the redemption event, time period for submission of application and the approach for processing the applications) as well as notify the stock exchanges. Such announcement shall be made within seven days of closure of the half year ending on which the liquidity criteria is tested. A suitable format for this purpose shall be prescribed by the stock exchange(s).
e. The IDR holders may submit their application to the domestic depository for redemption of IDRs within a period of thirty days from the date of such public announcement.
f. The redemption of IDRs shall be completed within a period of thirty days from the date of receipt of application for redemption.
g. Pursuant to such redemption, the domestic depository shall notify the revised shareholding pattern of the issuer company to the concerned stock exchanges within seven days of completion of the process of redemption.
7. All intermediaries are directed to comply with the instructions contained in this circular.
8. This circular shall be applicable with immediate effect.
9. This circular is issued in exercise of the powers conferred under Section 11 read with Section 11A of the Securities and Exchange Board of India Act, 1992.
10. This circular is available on SEBI website at www.sebi.gov.in under the categories “Legal Framework” and “Issues and Listing”.
Yours faithfully,
Sunil Kadam
General Manager
+91-22-26449630
Thursday, June 02, 2011
Press Release on DTAA with Government of Mozambique
No.402/92/2006-MC (12 of 2011)
Government of India / Ministry of Finance
Department of Revenue
Central Board of Direct Taxes
***
New Delhi dated the 1st June, 2011
PRESS RELEASE
The Government of India notified the Double Taxation Avoidance Agreement (DTAA) with the Government of Mozambique for the avoidance of double taxation and for the prevention of fiscal evasion with respect to taxes on income on 31st May, 2011.
The DTAA provides that business profits will be taxable in the source state if the activities of an enterprise constitute a permanent establishment in the source state. Examples of permanent establishment include a branch, factory, office, place of management, etc. Profits of a construction, assembly or installation projects will be taxed in the state of source if the project continues in that state for more than 12 months.
Profits derived by an enterprise from the operation of ships or aircraft in international traffic shall be taxable in the country of residence of the enterprise. Dividends, interest and royalties income will be taxed both in the country of residence and in the country of source. However, the maximum rate of tax to be charged in the country of source will not exceed 7.5% in the case of dividends and 10% in the case of interest and royalties. Capital gains from the sale of shares will be taxable in the country of source.
The Agreement further incorporates provisions for effective exchange of information and assistance in collection of taxes between tax authorities of the two countries in line with internationally accepted standards including exchange of banking information and incorporates anti-abuse provisions to ensure that the benefits of the Agreement are availed of by the genuine residents of the two countries.
The Agreement will provide tax stability to the residents of India and Mozambique and facilitate mutual economic cooperation as well as stimulate the flow of investment, technology and services between India and Mozambique.
***
Wednesday, June 01, 2011
Form No. 16A now generated from Tax Information Network (TIN)
CIRCULAR NO. 03 /2011
F. No 275/34/2011-( IT-B)
Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes
New Delhi, dated the 13th May, 2011
Subject: Issuance of TDS Certificates in Form No. 16A downloaded from TIN Website and option to authenticate the same by way of digital signature – Circular under section 119 of the Income-tax Act 1961.
1.Section 203 of the Income-tax Act 1961 (‘the Act’) read with the Rule 31 of the Income-tax Rules 1962 (‘the IT Rules’) provides for furnishing of certificate of tax deduction at source (TDS) by the deductor to the deductee specifying therein the prescribed particulars like amount of TDS, permanent account number (PAN), tax deduction and collection account number (TAN), etc. The relevant form for such TDS certificate is Form No.16 in case of deduction under section 192 and Form No.16A for deduction under any other provisions of Chapter XVII-B of the Act. TDS certificate in Form No.16 is to be issued annually whereas TDS certificate in Form No.16A is to be issued quarterly.
2. Currently, a deductor has an option to authenticate TDS certificate in Form No.16 by using a digital signature. However, no such option of using a digital signature is available to a deductor for issuing TDS certificate in Form No.16A and it, therefore, needs to be authenticated by a manual signature. The Central Board of Direct Taxes (the Board) has received representations to allow the option of using digital signature for authentication of TDS certificate in Form No.16A as issuance of TDS certificate in Form No.16A by manual signature is very time consuming, specially for deductors who are required to issue a large number of TDS certificates.
3. The Department has already enabled the online viewing of Form No.26AS by deductees which contains TDS details of the deductee based on the TDS statement (e-TDS statement)filed electronically by the deductor. Ideally, there should not be any mismatch between the figures reported in TDS certificate in Form No. 16A issued by the deductor and figures contained in Form No.26AS which has been generated on the basis of e-TDS statement filed by the deductor. However, it has been found that in some cases the figures contained in Form No.26AS are different from the figures reported in Form No.16A. The gaps in Form No.26AS and TDS certificate in Form No. 16A arise mainly on account of wrong data entry by the deductor or non-filing of e-TDS statement by the deductor. As at present, the activity of issuance of Form No.16A is distinct and independent of filing of e-TDS statement, the chances of mismatch between TDS certificate in Form No.16A and Form No.26AS cannot be completely ruled out. To overcome the challenge of mismatch a common link has now been created between the TDS certificate in Form No.16A and Form No.26AS through a facility in the Tax Information Network website (TIN Website) which will enable a deductor to download TDS certificate in Form No.16A from the TIN Website based on the figures reported in e-TDS statement filed by him. As both Form No.16A and Form No.26AS will be generated on the basis of figures reported by the deductor in the e-TDS statement filed, the likelihood of mismatch between Form No.16A and Form No.26AS will be completely eliminated.
4. In view of the above, for proper administration of the Act, the Board have, in exercise of powers under section 119 of the Act, decided the following :-
4.1 ISSUE OF TDS CERTIFICATE IN FORM NO. 16A
(i) For deduction of tax at source made on or after 01/04/2011:
(a) The deductor, being a company including a banking company to which the Banking Regulation Act,1949 applies and any bank or banking institution, referred to in section 51 of that Act or a co-operative society engaged in carrying the the business of banking, shall issue TDS certificate in Form No.16A generated through TIN central system and which is downloaded from the TIN Website with a unique TDS certificate number in respect of all sums deducted on or after the 1st day of April, 2011 under any of the provisions of Chapter-XVII-B other than section 192.
(b) The deductor, being a person other than the person referred to in item (a) above, may, at his option, issue TDS Certificate in Form No.16A generated through TIN central system and which is downloaded from the TIN Website with a unique TDS certificate number in respect of all sums deducted on or after the 1st day of April, 2011 under any provisions of Chapter-XVII-B other than section 192.
(ii) For deduction of tax at source made during financial year 2010-11:
The deductor, may, at his option, issue the TDS certificate in Form No.16A generated through TIN central system which is downloaded from the TIN Website with a unique TDS certificate number in respect of all sums deducted during the financial year 2010-11 under any of the provisions of Chapter-XVII-B other than section 192.
4.2 AUTHENTICATION OF TDS CERTIFICATE IN FORM NO.16A
(i) The deductor, issuing the TDS certificate in Form No.16A by downloading from the TIN Website shall authenticate such TDS certificate by either using digital signature or manual signature
(ii) The deductor being a person other than a person referred to in item 4.1(i)(a) above and who do not issue the TDS Certificate in Form No.16A by downloading from the TIN Website shall continue to authenticate TDS certificate in From No.16A by manual signature only.
5. The Director General of Income-tax (Systems) shall specify the procedure, formats and standards for the purpose of issuance of TDS certificate in Form No.16A which is downloaded from the TIN Website and shall be responsible for the day-to-day administration in relation to the procedure, formats and standards for issuance of TDS certificate in Form No.16A in electronic form.
6. It is further clarified that TDS certificate issued in Form No. 16A by the deductors covered by para 4.1(1)(a) in accordance with this circular and procedure, format and standards specified by the Director General of Income-tax (Systems) shall only be treated as a vilid TDS certificate in Form No. 16A for the purpose of section 203 of the Act read with Rule 31 of the IT Rules,1962.
7. Hindi version shall follow.
(AJAY KUMAR)
Director (Budget)
Tel.No.2309-2641
Copy to all CCsIT/ DsGIT for circulation
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