Offshore manager relocation not taking off

Despite efforts by the Securities and Exchange Board of India (Sebi) for enabling offshore fund managers to manage foreign money domestically, not many are ready to relocate to Mumbai.  

Earlier this year, the government had provided tax incentives and Sebi had relaxed the regulatory regime for fund managers willing to relocate. However, experts say, several clauses in the new guidelines are dissuading foreign fund managers.

"The procedures are too lengthy and complicated. The clauses mentioned in the new guidelines under the regime are unnecessarily prescriptive and impractical,” said Sandeep Parekh, founder, Finsec Law Advisors.

The new provision on remuneration by the eligible investment fund sn’t clear, say experts. The provision says for 'arm's length' determination of the remuneration, the fund and fund manager are considered as associated enterprises. And, the transaction as an international one; fund managers are required to comply with the transfer pricing provisions.

Experts say the eligibility of a fund is only impacted if the remuneration paid or payable by the fund to the manager has been determined to be not at an arm’s length price for a period of three previous years in succession or for any three of the preceding four previous years.

“Besides the compliance protocol, overseas jurisdiction is also a major cause for hindrance,” said Suresh Swamy, partner, PwC.

There are also issues with certain foreign jurisdictions. "For the eligible fund manager regulations to work, Sebi needs to be a recognised regulator in the origin country. In some key countries, it is not. Although it is a member of the International Organisation of Securities Commissions, that does not really matter,” said Swamy.

For instance, if a foreign fund is registered in Luxembourg, which is a part of the European Union, and the manager of such a fund is located in India, it isn’t allowed to be registered.

Beside, despite the tax incentives, offshore locations such as Hong Kong and Singapore, where most fund managers are based, are more attractive compared to India, say experts.