Jane Street might have to pay more taxes in India
What's the story
The Income Tax (I-T) department is investigating if global trading giant Jane Street has breached India's Place of Effective Management (POEM) guidelines. This investigation follows an interim order by the Securities and Exchange Board of India (SEBI) holding Jane Street guilty of market manipulation, with findings indicating that the company's ultimate control lies in Europe and the US. The POEM rules were introduced in 2015 to identify where a company is actually managed and controlled from.
Tax impact
What are POEM rules?
The POEM rules are designed to prevent multinational companies from artificially lowering their tax burden by setting up Indian subsidiaries that are controlled from abroad. The tax framework differentiates between domestic and foreign-controlled entities, with the latter facing a higher corporate tax rate of 35%. If an Indian-registered company is effectively managed from abroad, it could be taxed at a significantly higher rate under these guidelines.
Investigation details
I-T department surveys Nuvama Wealth Management
On July 31, the I-T department surveyed Nuvama Wealth Management, which serves as custodian for Jane Street's Singapore-based entity. The survey led to the seizure of documents related to Jane Street's ownership structure and decision-making authority. The I-T department is trying to find out if the Indian arm is being controlled from abroad, with real decision-making power resting with its foreign parent company.
Tax compliance
Compliance issues for Jane Street
Despite the ongoing investigation, Jane Street may be compliant with General Anti Avoidance Rules (GAAR) as it has a physical presence in India. The Indian entity pays 10-20% tax on derivative trades, while its Singapore entity pays no tax on derivatives due to an India-Singapore tax treaty. If the tax authorities decide that Jane Street India should be treated as a foreign-controlled firm, it could face retrospective taxes along with penalties and interest.
Global alignment
Broader implications of the investigation
POEM is part of India's efforts to align with international tax norms set by the Organization for Economic Co-operation and Development (OECD), to curb base erosion and profit shifting. Many multinational corporations, especially in tech and finance, have been under scrutiny for using low-tax jurisdictions while retaining the control from their home countries. The outcome of this investigation could have significant implications for Jane Street's operations in India.