cross border restructuring tax and legal issues case study 11 th october 2013 bela mao country tax...
TRANSCRIPT
CROSS BORDER RESTRUCTURINGTAX AND LEGAL ISSUES
CASE STUDY
11TH October 2013BELA MAOCOUNTRY TAX LEADSHELL INDIA MARKETS PRIVATE LIMITED
2
General points for consideration
Under Indian law
Tax implications in India
Tax neutral merger? Impact on tax attributes? GAAR Transfer pricing
Stamp duty implications?
Key regulatory implications
Companies Act, 1956 Companies Act, 2013 Competition Act, 2002 SEBI FEMA
Cross Border Restructuring - Tax and Legal Issues
Under foreign law
Capital gains tax
Deemed dividends implications
Any restrictions under foreign law impacting the merger
3
Merger of foreign companies – Base case
F Co
Hold Co
X Co
F Co 1
India
Outside India
Issue of shares
Merger
Facts
Hold Co a foreign entity holds investment in an Indian company X Co
Hold Co merges with F Co 1, which issues shares as consideration to F Co, the ultimate holding company
Hold Co does not derive substantial value from X Co
Implications
Hold Co exempt under Section 47 subject to conditions
F Co No exemption under Section 47 Extinguishment of Hold Co shares results in
transfer However, no tax implications since Hold Co does
not derive substantial value from X Co For F Co 1, costs of shares of X Co would be same as
Hold Co – Section 49Cross Border Restructuring - Tax and Legal Issues
4
Merger of foreign companies – Base case (contd…)
F Co
Hold Co
X Co
F Co 1
India
Outside India
Issue of shares
Merger
Implications (contd …)
Would there be GAAR considerations if Hold Co is merging into a jurisdiction with whom India has a more favourable treaty?
Would X Co share transfer be outside TP purview if exempt under Section 47? Is this on the same footing as an exempt share transfer under a treaty?
Could F Co 1 issue of shares be subject to TP regulations(AEs can be 2 NRs)? Would this be considered A transaction having a bearing on the assets
of the enterprises Capital financing Business restructuring?
Cross Border Restructuring - Tax and Legal Issues
5
Merger of foreign companies – Cash Consideration
F Co
Hold Co
X Co
F Co 1
India
Outside India
Cash
Merger
Facts
Hold Co a foreign entity holds investment in an Indian company X Co
Hold Co merges with F Co 1, which issues shares as consideration to F Co, the ultimate holding company
Hold Co does not derive substantial value from X Co
Implications
Hold Co does not derive substantial value from X Co Hold Co not exempt under Section 47 – can there be
tax? No consideration received by Hold Co F Co - no tax implications since Hold Co does not derive
substantial value from X Co F Co 1 - Section 49 not applicable. Possibility of cost
step up?
Cross Border Restructuring - Tax and Legal Issues
6
Merger of foreign companies – Cash Consideration (contd…)
F Co
Hold Co
X Co
F Co 1
India
Outside India
Cash
Merger
Implications (contd …)
Would there be GAAR considerations if Hold Co is merging into a jurisdiction with whom India has a more favourable treaty?
Cross Border Restructuring - Tax and Legal Issues
7
Merger of foreign holding company into Indian subsidiary
F Co
Hold Co
X Co
Outside India
India
Facts
Hold Co merges into X Co Resultantly, F Co has immediate holding in X Co
Implications
Exemption to Hold Co available under Section 47 subject to conditions
Tax / company law implications in resident country of Hold Co to be analysed
FEMA / company law implications in India to be analysed Would X Co share transfer be outside TP purview if
exempt under Section 47? Is this on the same footing as an exempt share transfer under a treaty?
Would there be GAAR implications if F Co is from a more favourable treaty country?
TP implications? ‘Business restructuring’ between AEs?
Cross Border Restructuring - Tax and Legal Issues
8
Merger of Indian subsidiary into Hold Co
F Co
Hold Co
X Co
Outside India
India
Facts
X Co merges into Hold Co F Co continues to be holding company of Hold Co
Implications
Outbound mergers have been prescribed in the Companies Act, 2013
Corresponding tax implications have not been prescribed Tax / company law implications in resident country of
Hold Co to be analysed TP implications? ‘Business restructuring’ between AEs?
Cross Border Restructuring - Tax and Legal Issues
9
Merger of Hold Co with ultimate Hold Co
F Co
Hold Co
X Co
Outside India
India
Facts
Hold Co merges into F Co Resultantly, F Co has immediate holding in X Co
Implications
Tax exemption to Hold Co in India subject to conditions under Section 47
Tax / company law implications in resident countries of Hold Co and F Co to be analysed
Would X Co share transfer be outside TP purview if exempt under Section 47? Is this on the same footing as an exempt share transfer under a treaty?
GAAR implications if F Co is in a more favourable treaty country?
Other TP implications? ‘Business restructuring’ between 2 NR AEs?
Cross Border Restructuring - Tax and Legal Issues