Norwegian corporate tax for operations in India. Martin Wikborg

Transcription

1 Norwegian corporate tax for operations in India Martin Wikborg

2 Going to India Norwegian corporate tax issues

3 Going to India The assumption: Norwegian tax resident company wishes to establish a business in India How to structure the Indian business operations Business considerations should decide Tax efficient structure is a part of business considerations The available main options: NorCo AS / ASA NorCo AS / ASA NorCo AS / ASA India Rep office India Branch / PE India Subsidiary Ltd

4 Going to India Representation office NorCo AS / ASA India Rep office Rep office is commonly used in India The tax issue is however if the Rep office is a Permanent Establishment (PE) / Branch in India If Rep office is not a PE No corporate tax in India Rep office expenses tax deductible in Norway If Rep office is a PE Tax consequences as if Branch

5 Norwegian international tax rules

6 Basic Norwegian international tax rules Norwegian corporate tax rate is 28% A Norwegian company is subject to tax on world wide income Foreign sourced profits are included in Norwegian tax base Foreign sourced losses are deducted in Norwegian tax base Proposed new rules for foreign sourced petroleum related activities Norwegian foreign tax credit regime Norwegian Controlled Foreign Company (CFC) Tax Regime Norwegian participation tax exemption regime on dividends and capital gains on shares Norwegian tax conventions for the avoidance of double taxation tax treaty net work Tax treaty with India of December 31, 1986 New treaty with India of February 2, In force? Norway December 20, 2011 with effect as from January 1 & April 1, 2012 India?

7 Branch in India

8 NorCo with a branch in India The term Permanent Establishment - PE NorCo AS India Branch / PE Article 7 of the tax treaty taxation of business profits India may tax only if NorCo has a PE in India, and in such case only the profits that can be attributed to the Indian PE When does a PE exist? Article 5 of the tax treaty a fixed place of business through which the business of an enterprise is wholly or partly carried out. Branch, office, factory, workshop, etc Building site, etc.: 3 months rule Services, etc.: 6 months rule Dependent agent in India may constitute a PE for the Norwegian principal PE exemption if services, etc. are of preparatory or auxiliary character for NorCo, e.g. warehouse only

9 NorCo with a branch Permanent Establishment (PE) in India NorCo AS India Branch / PE If Indian PE exist India may tax profits of PE Indian tax rate - up to > 40% India may offers tax holidays / tax incentives (not for Branches) Norway will tax the same income, but must grant a tax credit for Indian taxes (i.e. credit system as opposed to exemption system ) Limitations in the Norwegian foreign tax credit system Maximum tax credit lowest of taxes paid in other countries, and Norwegian corporate tax computed on foreign sourced income Credit system implies that NorCo will not fully benefit from Indian tax holiday / tax incentives If losses in India Deductible in Norwegian sourced income Proposed new rules on petroleum related activities will disallow tax deduction in Norway

10 Foreign subsidiary general rules

11 NorCo with foreign subsidiary NorCo AS The basic rule is that Norway will not levy tax on profits of a foreign resident subsidiary (ForCo), unless ForCo is also tax resident in Norway, or ForCo Ltd ForCo has investment (PE) in Norway, or ForCo is hit by Norwegian CFC-regime

12 NorCo with foreign subsidiary Controlled Foreign Company tax regime (CFC) NorCo AS CFC ForCo Ltd Norway may levy tax on a Norwegian shareholders on its part of the undistributed profits earned by ForCo if: ForCo is controlled by Norwegian tax payers Directly or indirectly 50% ownership or control by one or more Norwegian tax resident company or individual, and ForCo is resident in a low tax jurisdiction Effective tax less than 2/3 of Norwegian tax level (i.e %) CFC-regime is not applicable if: ForCo is resident in a tax treaty country provided the income of the income of ForCo is not mainly of a passive nature, or ForCo is resident and really established within the EEA If CFC-regime is applicable NorCo is taxed as if it is the direct recipient of the income of the CFC, e.g. Norwegian shareholder my benefit from the Norwegian participation exemption regime. Distribution of profits from CFC to shareholder is exempt from tax if shareholder has been subject to CFC taxation on said profits.

13 NorCo with foreign subsidiary in EEA Norwegian participation tax exemption rules NorCo receives dividends or capital gains / loss on shares NorCo AS EEA ForCo Ltd Subsidiary in EEA (EU + Lichtenstein and Iceland) Dividends received by NorCo 100% tax exemption if more than 90% owned 97% tax exempted if 90% or less (tax leakage of 0.84%) 28% tax if ForCo is resident in low tax EEA-jurisdiction provided ForCo is not really established within the EEA Norway grants tax credit for corporate tax paid by subsidiary Capital gain on sale of shares 100% tax exempted But 28% tax if ForCo resident in low tax EEA-jurisdiction and ForCo is not really established within the EEA Capital loss on sale of shares Never deductible

14 NorCo with subsidiary outside EEA (e.g. in India) Norwegian participation tax exemption rules NorCo AS Non-EEA ForCo Ltd Subsidiaries outside EEA (e.g. India) Dividends received by NorCo 97% tax exempted (0.84% tax leakage) provided Ownership of at least 10% for more than 2 years 28% tax if ForCo is resident in low tax jurisdiction, Norway grants tax credit for corporate tax paid by subsidiary Capital gain on sale of shares 100% tax exemption provided ownership of at least 10% for more than 2 years 28% tax if Ownership test not met, or ForCo is resident in a low tax jurisdiction Capital loss on sale of shares Not deductible if ownership of at least 10% at any point of time in a period of 2 years prior to sale. Always tax deductible if ForCo is resident in a low tax jurisdiction

15 Subsidiary in India

16 NorCo with subsidiary in India Direct investment low tax in India NorCo AS Assumptions 100% owned subsidiary More than 2 years of ownership Industrial business activities in IndiaCo Indian corporate tax less than 18.67% IndiaCo Ltd Tax situation in Norway Dividends received by NorCo - 28% tax with credit Capital gain on sale of shares 28% tax Capital loss on sale of shares - Deductible

17 NorCo with subsidiary in India Direct investment regular tax in India NorCo AS Assumptions 100% owned subsidiary More than 2 years of ownership Industrial business activities in IndiaCo Indian corporate tax of at least 18.67% IndiaCo Ltd Tax situation in Norway Dividends received by NorCo - 97% tax exempted Capital gain on sale of shares - 100% tax exempted Capital loss on sale of shares - Not tax deductible Vi taper aldri?

18 Indirectly owned subsidiary in India

19 NorCo with subsidiary in India Indirect investment via EEACo NorCo AS Assumptions 100% owned subsidiary via an EEA resident company More than 2 years of ownership Industrial business activities in IndiaCo Indian corporate tax of at least 18.67% EEA Co Ltd IndiaCo Ltd Tax situation in Norway Dividends received from EEACo 100 % tax exempted Capital gain on sale of EEACo shares - 100% exempted Capital loss on sale of EEACo shares - Not tax deductible

20 NorCo with subsidiary in India Indirect investment via Low Tax Co NorCo AS LowTaxCo NonEEA IndiaCo Ltd Assumptions 100% owned subsidiary via a company resident in a low tax jurisdiction outside the EEA More than 2 years of ownership Industrial business activities in IndiaCo Indian corporate tax of at least 18.67% Tax situation in Norway LowTaxCo subject to Norwegian CFC rules Dividends that LowTaxCo receives from IndiaCo are subject to CFC tax at NorCo level, but 97% tax exempted CFC-taxed profit NorCo receives from LowTaxCo is exempt from Norwegian taxation Capital gain LowTaxCo sells IndiaCo CFC tax in Norway, but 100% tax exempted Capital loss NorCo sells LowTaxCo loss is 100% tax deductible

21 NorCo with subsidiary in India Indirect investment via LowTaxCo NorCo AS LowTaxCo NonEEA IndiaCo Ltd Other issues must be considered, e.g.: Will the structure be appropriate from other business perspectives Are there any issues from an Indian tax perspective In which country should LowTaxCo be a tax resident Possibility to benefit from Norwegian tax treaty network Direct and indirect taxes (e.g. stamp duties) in LowTaxCo s jurisdiction Substance in LowTaxCo Exposure for LowTaxCo becoming a Norwegian tax resident company Norwegian anti tax avoidance rules

22 Thank you for your attention! Questions?