Indian Tax Authorities Scrutinize Jane Street for Potential GAAR Invocation
New Delhi, India – Global proprietary trading firm Jane Street is under the scanner of Indian tax authorities, who are investigating whether the firm’s significant profits can be taxed in India under the General Anti-Avoidance Rules (GAAR). This probe follows a recent order by the Securities and Exchange Board of India (SEBI) that barred Jane Street from Indian trading markets and ordered the impoundment of “unlawful gains” amounting to Rs 4,843.57 crore.
A central point of contention is Jane Street’s practice of booking a substantial portion of its profits in Singapore. Historically, the India-Singapore Double Taxation Avoidance Agreement (DTAA) has exempted derivative gains from taxation in Singapore, which Jane Street appears to have leveraged.
However, sources indicate that Indian tax authorities are now examining these transactions through the lens of the GAAR framework. Enacted in India in 2017, GAAR empowers the tax department to disregard arrangements that lack “commercial substance” or are primarily designed for tax evasion.
“Under GAAR, any setup that lacks ‘commercial substance’ or exists mainly to evade taxes can be reversed by the tax department,” explained Sandeep Sehgal, Partner-Tax at AKM Global. “Notably, if GAAR is invoked, profits earned by overseas entities can also be reattributed to the Indian entities, which can be taxed at rates up to 38.22%.”
Jane Street’s group structure involved two Indian entities (JSI Investments and JSI2 Investments) and two foreign portfolio investors (FPIs) based in Singapore and Hong Kong. While the Indian entities conducted intraday trades on Indian stock exchanges, the offshore FPIs booked substantial gains from index option trades.
Sehgal highlighted that Jane Street’s use of Indian entities to route intraday trades while booking large profits offshore, particularly in Singapore, raises “significant red flags” under India’s GAAR framework. “Though the arrangement was done to benefit from the inefficiencies in the system, certainly, the Indian tax department is likely to tax profits made by Jane Street group from Indian stock market over the examination p1eriod,” he added.
The outcome of this investigation could have significant implications for Jane Street, potentially leading to substantial tax liabilities in India.