sriram ramaswamy partner, pwc india · sriram ramaswamy partner, pwc india . pwc agenda 1....

Country update: India

Sriram RamaswamyPartner, PwC India

www.pwc.com

PwC

Agenda

1. Introduction

2. India – recent developments

3. Business structuring

4. Takeaway

5. Q&A

2Global Tax Symposium – Asia 2015

PwC

Introduction


PwC

Backdrop that was… was …

A new government with an historic majority and determination to change!!

not an easy place to do business

very high tax jurisdiction with

a complex framework

very aggressive tax authorities –

prone to litigation

Global Tax Symposium – Asia 2015Slide 4

PwC

Sweet spot now!

Potential and expectations are indeed high

“India has reached a sweet spot—rare in the history of nations—in which it could finally be launched on a double-digit medium-term growth trajectory”

Economic Survey 2014 -15

“ India is a 2 trillion dollar economy today. Can we not dream of an India with a 20 trillion dollar economy?”

PM address at ET Global Business Summit, Jan 2015

India in a Sweet Spot

“The world is predicting that it is India’s chance to fly”

Finance Minister, Budget speech

“ If India takes the winning leap, it could be a US$10 trillion economy with a CAGR growth of 9% in the next 20 years”

PwC report: Future of India – the Winning Leap

Global Tax Symposium – Asia 20155

PwC

This Government will not ordinarily bring about any change retrospectively which creates a fresh liability.”

Finance Minister, Budget speech 2014

“You will find environment that is open and welcoming. Our aim is to be in top 50 nations in ease of doing business”

PM Modi in January 2015

“I propose to set up a High Level Committee to interact with trade and industry on a regular basis and ascertain areas where clarity in tax laws is required.”


“To achieve these objectives, it has been our endeavour in the last nine months to foster a stable taxation policy and non-adversarial tax administration.”


Push for manufacturing, infrastructure , economic and industrial growth. 10-12 million jobs to be created pa. Stock market is up, and expectations are high.

What the government has said


PwC

Walking the talk

Ease of doing business

Labour reforms unveiledIncorporation process simplified

Tax litigation High level advisory committee set up for key litigative matters

Non-adversarial tax regime

No further appeal pursued by Revenue on key Transfer Pricing rulings

Retroactive amendments

Stable tax environment and no retroactive amendments

Economic reforms Key bills such as land use/ GST yet to move


PwC

India – recent developments


PwC

Key developments

International alignment

Enhanced OECD convergence

Lower rates but higher Tax:GDP

Subsidies: More empowerment to

State Government

Managing disputes

Dispute resolution –focus on prevention

BEPS convergence Lower tax ratesStatutory GAAR postponed with grandfathering

Source based focus remains

Widening of tax base No retrospective amendment


PwC

Offshore/ indirect transfers

Specific exemption for transfer under merger/ demerger

Offshore entity

Offshore entity

India Co.

Singapore

India

Investors

Intermediary jurisdiction

Investors

50% of the value derived

from India

Minimum 5% interest/ holding

Offshore dividends

not taxable

Offshore dividends

not taxable

Past transactions? Intra-group? Transfer of listed shares? Treaty benefit?


PwC

Indirect transfers – applicability

>=50%

Indian assets

FCO2

FCo1

<=5%

>=50%

Indian assets

FCO2

FCo1

>5%

<50%

Indian assets

FCO2

FCo1

>5%

Not taxable Taxable Not taxable

• Prospective from 1 April 2015

• Gains proportionate to value of assets taxable

Shareholding

Gross Assets

• Seller to file Tax Return in India• Buyer to comply with withholding tax

obligation / reporting• Documentation on valuation – critical


PwC

Direct tax updates

Deferred by 2 yearsGAAR

Reduction in taxesCorporate

taxes

WHT on royalty/

FTS

Black money• Law on black money

introduced

• Automatic exchange of tax information

• Tax Computation Standards (ICDS) notified

Tax accounting standards


PwC

Minimum Alternate Tax (MAT) on foreign companies

Evaluate intervention in court

Evaluate restructuring local entity

For past

• No exclusion from MAT• Litigation is pending at

Supreme Court• Special committee constituted

From 1 April 2015

• No MAT if corporate tax locally is lower than 18.5%

• Exclusions of gains of certain securities only

Recent amendment opens up the issue


PwC

Place of effective management (POEM)

Finance Act 2015 –Residence of foreign companies to be determined based on POEM

OECD Model commentary:• Emphasis on effective management for substantial period of time • POEM operates as a tie breaker as against the primary test

POEM – ‘Place where key management and commercial decisions that are necessary for the conduct of the business of an entity as whole are, in substance made’

• Global board meeting in India? • India as regional headquarters? • Outbound investment from India?• Global mobility of employees from India?

CBDT Circular keenly awaited


PwC

Business structuring


PwC

Overview of tax rates

*Inclusive of applicable surcharge and education cess (assuming income earned > INR100m )** All rates are subject to tax treaty benefits

Domestic company – fully distributed 45.92%

Limited liability partnership 34.61 %

Foreign branch 43.26%

Capital gains rates** 0% / 10.82% / 21.63% / 43.26%


PwC

Entry strategy for India

Direct Single Hold Co. Dual Hold Co.

India Co

Foreign Co

India

100%

India Co

Foreign Co

100%

Overseas Hold Co.

100%

Foreign Co

100%Overseas Hold Co.1

100%

Overseas

India Co

Overseas Hold Co.2

100%

Overseas holding company jurisdiction?

17Global Tax Symposium – Asia 2015PwC

PwC

Current environment in typical holding jurisdictions

Increased instances of movement of investments towards Singapore


Mauritius GAAR overhang

Cyprus Blacklisted

Netherlands Limited benefits

Singapore Explicit substance requirements

Luxembourg Suitable for debt funding/ indirect transfer

PwC

Structure realignment

Sale of business Cross border merger

India Co 1

Foreign Co

100%

India Co

Foreign Co

100%

Hold Co. 1

100%

Hold Co.

India Co 2

Hold Co. 2

India

Incorporation

1

Incorporation

1

Incorporation 2 Merger of Hold Co.1 into Hold Co 2

2

4

100%

Merger

3 Sale of business

Overseas

Gift/contribution

India Co

Foreign Co

Hold Co.100%

Gift of shares of I Co.

Incorporation

1

2


Specific facts and circumstances to be evaluated alongwith detailed technical analysis

PwC

Debt push down

India Co 1

India Co 2(target)

Foreign CoForeign Co

I Co.1 to acquire shares of target

I Co1 to be funded through Compulsory convertible debentures (CCD)

Merger of I Co. 2 into I Co. 1

1

23

I Co. 1

I Co. 2 (New Co.)

100%

I Co.2 to acquire shares of Ico.1

2

1I Co.2 to be funded through CCDs

Merger of I Co. 1 into I Co. 23

New acquisition structure Migration of existing structure

Structure enables pushing acquisition debt into target



PwC

Migrating to LLP

India Co

Slump sale

1

2

3

Foreign Co

India LLP

Overseas

India

Hold Co

Incorporation

Wind up

Slump sale into LLP Demerger followed by conversion into LLP

India Co

India LLPDemerger

1

2

3

Foreign Co

New Co

4

OverseasIndia

Conversion

IncorporationWind up



PwC

Repatriation

India Co 2

Overseas Co

Overseas

India

India Co 1

Merger

Issue of shares

Buy-back

India Co 1

Foreign Co

India Co 2

Capital reduction

Merger

Merger followed by buy-back

Merger followed by capital reduction

1

2

1

2



Transfer pricing

PwC

The reform agenda

Non-adversarial administration

• Convergence with OECD – Introduction of range, multiple year data, roll back provisions

• Restructured dispute resolution panels

• Deferral of GAAR to align with introduction of BEPS

• Risk based selection of cases – CbC a tool

• Fast tracking of MAP/ APA

• TARC recommendations likely to be implemented


PwC

APA update

Key statistics

• 378 applications till last March –only few bilateral

• 150+ expected this year

• Taxpayers can pace their APAs• Roll back expected to be an addendum• Location savings issue addressed• Marketing intangibles still open

Process

• 5 unilateral (2 led by PwC) • 1 bilateral (with Japan)• 10+ cases by March 2015Outcome


Goods and service tax (GST)

PwC

Overview of GST

• Currently not all taxes creditable – cascading effect• Dual GST proposed to be introduced from April 2016

- State and central level taxes to be subsumed• Seamless credit – no cascading effect

No exemptions

Uniform valuation

Credit maximisation

Destination based

Uniform classification


PwC

Impact areas

Compliances/ revised framework

ERP/ accounting system/change & enhance

Contractual arrangements/ Vendor diligence/ maximise credit

Business model structuring/Business efficient logistics

Tax/ pricing/ top-line drop

Transition


PwC

Takeaway


PwC

Takeaway

Dynamic government with a fast changing

environment on tax and regulatory fronts

Engage with government proactively

on tax matters

GST: make most out of itLogistics, contracting &

credit maximisation

Restructure now –window of opportunity LLP, Public company

and holding structures

The past –clear it upEvaluate settlement

channels to mitigate and resolve disputes

Reshape and enhance capacity of local team

GST, Legal, PR

Significant growth opportunities


PwC

Q&A


PwC

Sriram Ramaswamy (Sri)Partner, PwC IndiaPhone: +91 80 4079 6004Mobile: +91 78290 66399 [email protected]

Contact us

32Global Tax Symposium — Asia 2015

Thank you.

The information contained in this presentation is of a general nature only. It is not meant to be comprehensive and does not constitute the rendering of legal, tax or other professional advice or service by PricewaterhouseCoopers Ltd. ("PwC"). PwC has no obligation to update the information as law and practices change. The application and impact of laws can vary widely based on the specific facts involved. Before taking any action, please ensure that you obtain advice specific to your circumstances from your usual PwC client service team or your other advisers.

The materials contained in this presentation were assembled in May 2015 and were based on the law enforceable and information available at that time.

© 2015 PwC. All rights reserved. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details.

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