Indian tax authorities are reportedly seeking to apply India’s MAT to Foreign Portfolio Investors (FPIs) (and to Foreign Institutional Investors (FIIs) under the previous regime) in relation to their gains from Indian Offshore Derivative Instruments (ODIs). While India’s finance minister clarified that capital gains earned by FPIs from 1 April 2015 would be excluded from “book profits” in computing MAT for the year 2015-16 (though this is yet to be officially enacted), India’s tax authorities have been taking steps to collect MAT in relation to ODI activity prior to 1 April 2015. This in effect applies a retrospective tax, disregarding the more favourable current tax regime. A legal battle between FPIs and the Indian tax authorities is therefore likely to result. Clients who have historically dealt in ODIs directly as an FPI or FII should consider seeking advice from Indian tax counsel. For any clients that have traded ODIs with FPIs or FIIs as a synthetic market access product, any tax indemnities that may have been given to counterparties should be assessed to see whether a retrospective MAT charge could be an indemnifiable tax. For any clients that may be in the process of setting up new ODI trading relationships, it is important to ensure that only the appropriate risks are assumed (as we have seen some very wide indemnities being requested).


We have seen prime brokers and custodians reaching out to clients in order to amend existing terms of business, PBAs and custody agreements to align them with the new CASS rules coming into force on 1 June 2015. The changes include:

  • allowing counterparties to transfer client money to third parties in a business transfer situation;
  • clarifications relating to firms dealing with allocated but unclaimed client money and custody assets;
  • clarifications regarding firms holding custody assets with third parties or in non-EEA jurisdictions (including limiting liability for such third parties); and
  • providing appropriate disclosures to clients as required by the COBS rules of the FCA handbook.

These changes are largely operational and should not have an impact on day-to-day trading. However, some institutions used the guise of new CASS rules coming into force as an opportunity to introduce non-CASS related changes to the existing agreements, including introducing clauses that deal with FATCA and amendments to previously negotiated commercial terms. Care must be taken when reviewing the changes to ensure that: (1) CASS related changes reflect the updated CASS rules; and (2) other amendments are not agreed to without appropriate commercial negotiation taking place.


Customs and Revenue Brief 8 (2015) is HMRC’s most recent response to the ECJ decision in PPG Holdings BV (C-26/12) on the ability of an employer to recover VAT incurred on the cost of administrative and fund management services provided to defined benefit pension schemes. This Brief is an update to Customs and Revenue Brief 43 (2014): VAT on pension fund management costs, and focuses on the use of tripartite agreements for fund management services between the employer, the pension scheme trustees and the third party service provider. The Brief provides that a tripartite contract can be used by an employer in order to deduct VAT incurred on these services, provided that the contract contains certain minimum requirements (as set out in the Brief).

HMRC’s latest Brief is a welcome development from an employer’s perspective, as it addresses some of the difficulties faced by employers in trying to satisfy the requirements set out in Brief 43 (whereby the employer must show that it is the recipient of the supply, and has paid for and is a party  to the contract for the services provided). Employers should be looking to take specialist tax and pensions law advice now in order to optimise their VAT recovery on administrative and fund management services through the use of tripartite agreements.