Register to receive Taxand’s latest opinion on topical tax news
News › Weekly Alert Article
The withdrawal of pricing norms for FDI transactions
The Reserve Bank of India (RBI) has issued its first Bi-Monthly Monetary Policy Statement for the year 2014-15. Taxand India discusses their announcement to withdraw pricing norms for FDI transactions.
Whilst most analysts were focused on RBI’s policy statement on monetary and liquidity measures for the economy, the RBI has positively surprised the foreign investor community with its statement on their intent to withdraw pricing norms of financial instruments (viz. shares and debentures).
The intent is to do withdraw pricing norms both at the time of initial investment as well as at the time of the exit.
The RBI in part B of the Monetary Policy viz. Developmental and Regulatory Policies stated:
“As regards foreign direct investment (FDI), it has been decided to withdraw all the existing guidelines relating to valuation in case of any acquisition/sale of shares and accordingly, such transactions will henceforth be based on acceptable market practices. Operating guidelines will be notified separately”.
Also published in Thomson Reuters' Taxnet Pro, 4 April 2014
Currently the foreign direct investment policy in India specifies formula based pricing norms for issuance/ sale of shares/ debentures. Recently, the RBI had issued specific pricing norms in the context of put/ call options. The RBI via the Monetary Policy has made a fundamental move, indicating its decision to move completely to a pricing regime which is based on acceptable market practices.
Whilst the detailed operating guidelines are awaited in this regard, this move is expected to significantly impact foreign investors, particularly PE and VC funds.