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CROSS BORDER RESTRUCTURING TAX AND LEGAL ISSUES CASE STUDY PowerPoint PPT Presentation


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CROSS BORDER RESTRUCTURING TAX AND LEGAL ISSUES CASE STUDY. 11 TH October 2013 BELA MAO COUNTRY TAX LEAD SHELL INDIA MARKETS PRIVATE LIMITED. General points for consideration. Under foreign law Capital gains tax Deemed dividends implications

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CROSS BORDER RESTRUCTURING TAX AND LEGAL ISSUES CASE STUDY

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Cross border restructuring tax and legal issues case study

CROSS BORDER RESTRUCTURINGTAX AND LEGAL ISSUESCASE STUDY

  • 11TH October 2013

  • BELA MAO

  • COUNTRY TAX LEAD

  • SHELL INDIA MARKETS PRIVATE LIMITED


General points for consideration

General points for consideration

  • Under foreign law

    • Capital gains tax

    • Deemed dividends implications

    • Any restrictions under foreign law impacting the merger

  • 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


Merger of foreign companies base case

Merger of foreign companies – Base case

F Co

Issue of shares

Hold Co

F Co 1

Merger

Outside India

India

X Co

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 49

Cross Border Restructuring - Tax and Legal Issues


Merger of foreign companies base case contd

Merger of foreign companies – Base case (contd…)

F Co

Issue of shares

Hold Co

F Co 1

Merger

Outside India

India

X Co

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


Merger of foreign companies cash consideration

Merger of foreign companies – Cash Consideration

F Co

Cash

Hold Co

F Co 1

Merger

Outside India

India

X Co

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


Merger of foreign companies cash consideration contd

Merger of foreign companies – Cash Consideration (contd…)

F Co

Cash

Hold Co

F Co 1

Merger

Outside India

India

X Co

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


Merger of foreign holding company into indian subsidiary

Merger of foreign holding company into Indian subsidiary

F Co

Hold Co

Outside India

India

X Co

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


Merger of indian subsidiary into hold co

Merger of Indian subsidiary into Hold Co

F Co

Hold Co

Outside India

India

X Co

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


Merger of hold co with ultimate hold co

Merger of Hold Co with ultimate Hold Co

F Co

Hold Co

Outside India

India

X Co

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 favourabletreaty country?

  • Other TP implications? ‘Business restructuring’ between 2 NR AEs?

Cross Border Restructuring - Tax and Legal Issues


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