Paris is becoming the new tax haven, Citi warns Finance Ministry

Citi, which was once perceived as a master in regulatory arbitrage, has warned the government about Paris being the latest tax haven after Mauritius came into eyes of the government and lost its charm.

Citi recently met with officials from the finance ministry and pointed out how some global banks and funds are making use of the treaty that India has with France, in a bid to escape tax.

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Over the past few months, a few leading foreign portfolio investors (FPIs) have established themselves in Paris, so that they can pull offshore investors and issue participatory notes (PNs). These PNs are derivatives sold to foreign investors who are willing to trade in Indian stocks.

Until the end of March 2017, such business was carried out of Mauritius; however, soon after India and Mauritius amended their tax treaty, it lost its charm. As per the amendments effective from April 2017, Indian securities bought by Mauritius entities would attract capital gains tax.

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"Citi and some of the other banks are losing business as many clients are choosing to deal with FPIs located in Paris or The Netherlands," an official with a brokerage told ET.

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