engineering, procurement, construction (epc)€¦ · epc- an introduction an epc contract...

Engineering, Procurement,Construction (EPC)Challenges made easy

www.nangia-andersen.com

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Contents About Us

EPC-An introduction

Indian Context

Typical Components

Typical Project Structures

Indian Regulatory & Tax – Landscape & Challenges

o Regulatory

o Corporate Tax

o Transfer Pricing

o Indirect Tax

Service Offerings

o Advisory Services

o Implementation & Compliance services



About UsNangia Andersen LLP is a premier professional services organization offering a diverse range of Entry strategy, Taxation, Regulatory and Transaction Advisory, Accounting & Compliances services. We are an Andersen Global tax consulting and advisory firm in India. As part of Andersen Global we have reached more than 200 offices globally, having presence in more than 100 countries. In India, Nangia Andersen LLP has a PAN-India coverage, with offices in Noida, Delhi, Gurugram, Mumbai, Dehradun, Bengaluru, Chennai, and Pune. Nangia Group has been in existence for around 40 years and has been consistently rated as one of the best tax and regulatory advisors in India.

Quality of our people is the cornerstone of our ability to serve our clients. For this reason, we invest tremendous resources in identifying exceptional people, developing their skills, and creating anenvironment that fosters their growth as leaders. From our newest staff members through senior partners, exceptional client service represents a dedication to going above and beyond expectations in every working relationship.

We strive to develop a detailed understanding of our clients’ business and industry sector, to offer insights on market developments and assist our clients develop effective strategies and business models. We have the resources and experience necessary to anticipate and competently serve our clients on issues pertaining to all facets of Accounting, Tax and Regulatory services. We take pride in our ability to provide definite advice to our clients with the shortest turnaround time. The business and tax landscapes have changed dramatically, and the pace and complexity of change continues to increase. We can assist in navigating this shifting landscape.

EPC- An IntroductionAn EPC contract encompasses the following key activities:

Engineering

Project definition, preparation, and feasibilityDesigning and detailing technical specificationsPreparation of performance standards, maintenance, and

training manualsProject and construction managementDocumenting deliverables etc.

Construction

Erection, supervision, commissioning, testing and completion of the facility

Safe and efficient completion with quality controlsCorrection of defects

Procurement

Sourcing equipment and spare parts - inviting bids, negotiations, and vendor finalization

Procurement/ import from third parties - regulatory clearances and quality checks

Vendor management and internal controlsDelivery to the site, efficient usage, and control checks

EPC contracts predominantly have acombined scope of work involvingservices and supplies and are commonin sectors such as:

rgy

Telecom


Indian Context

The Indian growth story has attracted a lot of interest across the globe and the same extends to the EPC industry, which is likely to witness even more global players entering the dynamic Indian market in the times to come.

To achieve the GDP of $5 trillion by 2024-25, India needs to spend about $1.4 trillion (INR 100 lakh crore) over these years on infrastructure. To achieve this objective, a Task Force was constituted to draw up the National Infrastructure Pipeline for each of the years from FY 2019-20 to FY 2024-25, with the approval of the Finance Minister. The Task Force submitted its final report for the fiscal years 2019-25 to the Finance Minister on April 29, 2020. During the fiscals 2020 to 2025, sectors such as Energy round 70% of the projected capital expenditure in infrastructure in India.

Given the focus of the Indian Government on infrastructure spending, the Indian EPC sector is bound to grow at a rapid pace and global players are likely to play an important role in the specialized EPC sectors.

However, the growth in the sector is coupled with various challenges which range from regulatory and tax ambiguities, funding concerns, collaborations with global companies, and execution issues. In view of the present dynamics, many players are focusing more on core competencies and improve profitability by controlling costs and ensuring timely completion of projects with highest qualitystandards.



Typical Project StructuresThere could be variety of structures which can be used from a supply chain perspective for executing an EPC contracts depending on the requirements of project.

Unincorporated Incorporated

Joint Venture (JV)/ Consortium

re in India

re in India

Incorporated Entities

r ffice in India

Typical Components

OffshoreSupply

OnshoreSupply

OffshoreServices

OnshoreServices


Indian Regulatory & Tax -Landscape & Challenges

rns in the EPC industry, is the time involved in obtaining regulatory approvals including various licenses, regulatoryclearances, acquisition approvals, importation delays etc., delaying the project and causing cost overruns.

Some key issues:

Approval requirements where contract is between twozForeign Companies

Separate bank accounts for each project

o Approval requirements to maintain single bank where there are multiple contracts awarded and executed by Foreign Company

Approval requirement for receiving contractual receipts in offshore account of parent company/ head office

Separate accounting for each project for Reserve Bank of India purposes

Regulatory

India has a complex tax environment wherein tax ambiguities, time involved in tax assessments / litigation results in considerable tax exposures / resultant tax costs for EPC projects in India. Even though continuous amendments in the tax legislation, have taken place over the years,considerable efforts are required to obtain added clarity in the tax positions for the industry.

Some key issues:

Taxability of the consortium – Association of Persons

Permanent Establishment (‘PE’) exposure in India

Taxability of offshore supplies

Withholding tax on offshore payments

Deductibility of expenditure incurred by head office/ consortium members

Personal / Expatriate taxation

General Anti-Avoidance Rules (‘GAAR’) provisions

Corporate Tax


Indian Regulatory & Tax -Landscape & Challenges (Contd.)

Transfer pricing regulations in India have emerged as one of the most important and critical areas of tax planning and tax controversy for global corporates operating in India. Accordingly, it is important to benchmark transactions between Associated Enterprises (AEs) from the arm’s length perspective, to comply with the Indian transfer pricing regulations. In terms of EPC contracts, transfer pricing regulations would be relevant in various transactions.

Some key issues:

Split of consideration between offshore work and onshore work

Attribution of profits to the PE in India

Procurement of goods/services from related parties

Supply of manpower/ technicians etc.

Transfer Pricing

Indirect taxes in India include Customs duty, Goods & Services Tax (GST), and local levies such as Building Cess, Professional Tax etc. These taxes have a direct impact on the project costs. It is extremely important to ensure that the structure allows smooth credit flow of creditable taxes and at the same time appropriate exemptions and concessions are claimed to reduce the costs especially in relation to non-creditable taxes and duties.

Some key issues:

Identifying the Harmonized System of Nomenclature (HSN) code,

especially in case of import of goods and for provision of services

Availability of exemption/concessional rate of customs duty

Availability of exemptions under GST

Classification of contract for GST purposes – works contract, composite

supply etc.

Non-utilization or accumulation of input taxes, optimization of input taxes

Incentives under the Foreign Trade Policy

Indirect Tax

Service Offeringsy and implementation support,

throughout the entire life cycle of a project, starting from project preparation stage to the completion of the project.

Some of our key EPC specific service offerings are as under:

a. Advisory Services

Project Life Cycle

PrepatoryStage


Pre Bid Stage

Project planning

Contract structuring

Investment/ funding structuring

Strategizing cross border transaction

Review of bid documents from tax perspective

Structuring, strategizing and assessing EPC business model

Tax optimastion and risk assessment

Tax cost modelling & optimisation of input tax credits

1 2

Post Bid Stage


3 4

CompletionStage

Assessment of completion reports

Cash repatriation

Regulatory support for exit strategy

Re-export benefits

Set up tax efficient structure

Compensation structuring

Review and structuring of contracts from income, transfer pricing, custom duty and GST perspective

Structuring of the intra group transactions

Transfer pricing planning study and analysis

Accounting advisory services

Time to time support services

Project Life Cycle


b. Implementation & Compliance Services

regulatory approvals/ clearances

Pr ffice set-up

Incorporation of Company or Limited Liability Partnership in India

registrations under corporate law, exchange control regulations and various local laws such as labour laws, shops & establishment law etc

w, exchange control regulations, and other local laws

Registration of expatriate employees with For f

Payroll processing for domestic and expatriate employees

Tax filings for employees

Representations for assessments and other matters

Regulatory Employee Support

Assistance in tax registrations

Assistance in tax filings

Assistance in tax compliances including

specific matters

matters

Litigation support

Assistance in maintenance of prescribed year end transfer pricing documentation

Litigation support

Corporate Tax Transfer Pricing


account of taxes

concessions

Assistance in registrations and management of on-going statutory obligations/ periodic and annual compliances/ tax filings

adopted

Assistance in obtaining licenses for import of restricted items

Litigation support

Indirect Tax


Corporate and project finance

Coordination support

Accounting Other Services


DELHI(Register ffice)B-27, Soami Nagar,New Delhi-110017, IndiaT: +91 120 2598000

MUMBAI11th Floor, B Wing, PeninsulaBusiness Park, Ganpatrao Kadam Marg, Lower Parel, Mumbai400013, India | T: +91 22 61737000

BENGALURUEmbassy Square, #306, 3rd Floor, 148 Infantry RoadBengaluru, Karnataka 560001T: +91-80-2228-0999

DEHRADUNFirst Floor, “IDA” 46 E. C. Road,

T: +91 135 271 6300/301/302/303

NOIDA(Delhi NCR - Corporate

ffice) A-109, Sector 136,Noida - 201304T: +91 120 5123000

GURUGRAM812-814, Tower B, Emaar DigitalGreens Sector 61, Gurugram,Haryana, 122102T: +0124-4301551/1552/1554

CHENNAIPrestige Palladium Bayan, Level 5, 129-140, Greams Road, ThousandLights, Chennai 600006T: +91 44 4654 9201

PUNEffice number 3, 1st Floor, Aditya

Centeegra, Fergusson College Road,Next to Mantri House,Pune - 411004, India

www.nangia-andersen.com | [email protected]

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