-Anup P. Shah. 20 th June 2013 Chamber of Tax Consultants Int l Tax RRC at Bengaluru

Transcription

1 -Anup P. Shah 20 th June 2013 Chamber of Tax Consultants Int l Tax RRC at Bengaluru

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3 Acquisition of Indian Business by ForCo Sale of Bus. By ICo to ForCo Merge I Co into ForCo PRAVIN P. SHAH & CO. 3

4 Indian Co. sells one Unit to F Co. Sale by way of Slump sale or Itemised Sale Intel, USA slump sold its Branch to a WOS of Intel FEMA Issues For F Co. would Acq. of Unit would constitute a Branch? If Yes, then RBI permission HO s Track Record in 5 yrs & Net Worth > $1 lakh considered Defn. Includes Mfg. of Goods but Reg. don t mention Land / Bldg. by Branch - Filing of Form IPI with RBI PRAVIN P. SHAH & CO. 4

5 Company Law Sale of whole / substantial Undertaking s.293(1) Ordinary Resl. by Seller Co. Postal Ballot for Listed Cos. Special Resln. under Cos. Bill + PB for all Cos. Competition Act ForCo has no presence in India Consider whether transaction requires Anti-trust permission under UK or Other Laws? PRAVIN P. SHAH & CO. 5

6 Sale of Assets Direct Taxes Indirect Taxes Slump Sale: s.50b Asset Sale: S.50, 50C, 45 VAT/CENVAT PRAVIN P. SHAH & CO. 6

7 Slump Sale Lump sum consideration No itemised break-up Excess of SC over Networth = LTCG / STCG Taxable u/s. 45 r.w. s.50b Itemised Sale Itemised Break-up over A&L Gains Taxable: S.50C: Land & Building S.50: Depreciable Assets S.50C also S.45(1): Other Assets Funds in Seller Co. - consider DDT on Dividend / Tax on VL FCo. s Indian Branch 40%+SC+EC PRAVIN P. SHAH & CO. 7

8 VAT? If Itemised Sale? If Slump Sale? Lump sum consideration w/o break-up to A/L Is a slump sale a sale in the course of Business? Service Tax? CENVAT Credit of Unit available to Buyer Co.? Service Tax on Sale? 8 PRAVIN P. SHAH & CO.

9 Stamp Duty Movables Immovable On what Value What about Slump Sale Agr? Conveyance No Agr. PRAVIN P. SHAH & CO. 9

10 Instead of direct Acqn. FCo can consider having a WOS which can acquire the Business Example L&T wanted to sell its Ready Mix Concrete (RMC) Business RMC was a unit within L&T Lafarge of France was interested in buying this RMC unit Agreement reached for $349 million PRAVIN P. SHAH & CO. 10

11 Lafarge France India L & T Slump sale of RMC Lafarge India PRAVIN P. SHAH & CO. 11

12 Shareholders Foreign Co. Merges Into Indian Co. PRAVIN P. SHAH & CO. 12

13 Can Sunrise (Indian Company) merge into Union Jack (For Co)? Can Union Jack issue its shares to shareholders of Sunrise India? Is it possible u/s.394 of Companies Act? Can Transferee Co. be a Foreign Co.? PRAVIN P. SHAH & CO. 13

14 Does the Companies Bill 2012 permit such a Merger? FEMA Regulations? Can Indian Shareholders own shares in Foreign Co. by way of merger Tax Exemption available? PRAVIN P. SHAH & CO. 14

15 Union Jack UK UK India Indian Shareholders Sunrise India Merges Into UJ India PRAVIN P. SHAH & CO. 15

16 E.g.,: Makemytrip India, WNS Holdings, Genpact Holdco merges with Union Jack Ltd 100% Sunrise India Abroad India PRAVIN P. SHAH & CO., CAs 16

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18 Acquisition of For. Business by ICo Merge FCo into ICo Demerger from Fco into ICo Sale of Bus. By ForCo to ICo Takeover of ForCo by ICo PRAVIN P. SHAH & CO. 18

19 Shareholders Indian Co. Merges Into Foreign Co. PRAVIN P. SHAH & CO. 19

20 Company Law Does the Companies Act permit such a Merger? Does the Companies Bill permit such a Merger? Permission of High Court of Transferee IndCo Foreign Law Permission, if any, under Foreign Laws Do all jurisdictions allow Foreign mergers? Permission of Foreign St. Ex since Wall Four listed abroad, e.g., requirements of SEC, USA PRAVIN P. SHAH & CO. 20

21 Tax Implications? Can you merge under Income-tax Yes CGT by Fco for Business in India? No CGT by the Indian Shareholders holding shares in Fco.- Conditions? PRAVIN P. SHAH & CO. 21

22 Other Laws FIPB s approval required for merger What if Foreign WOS merges into Indian HoldCo.? E.g., Wipro s Singaporean & Bermuda WOS with Wipro Do SEBI Takeover Regs. Apply? Permission of CCI If ICo is listed SEBI Permission is required Cl. 24 of Listing Agreement PRAVIN P. SHAH & CO. 22

23 Stamp Duty Art. 25 under Mah. Stamp Act 10% of Market Value of shs issued + consideration But not exceeding higher of: 5% of Market Value of Immovable Property of Transferor located in Maharashtra; or 0.7% of Market Value of shares issued Specific Entries in Guj / Kar / Raj / Ker / WB / TN In States where no Specific Entry? 23 PRAVIN P. SHAH & CO.

24 Alternatives to Merger I Forming WOS Abroad & then merger of F Co with WOS II Forming WOS Abroad & then WOS acquiring F Co PRAVIN P. SHAH & CO., CAs 24

25 Instead of Merger of FCo. Can consider Demerger of Assets from FCo. To ICo. Same Legal Provisions as a Merger of FCo. Into ICo. Transfer of capital asset Tax Exempt Issue of shares by Ico. Tax Exempt PRAVIN P. SHAH & CO. 25

26 FEMA Regulations Up to 400% of Networth of Ico. ECBs can be used for acquisition Valuation of existing FCo. Company Law S.372A = Up to 100% of Free reserves or 60% of Paid-up Capital + Reserves Consider Foreign TOR / Delisting Laws Hart Scott Rodino Act in US / City Code in UK US Co. fully owned by non-us people restricted activity / addl. Tax Add. Reporting In US Open Offers vary Statewise + Federal Act Tender Act Apollo Tyres would be delisting Cooper Inc. after acquisition PRAVIN P. SHAH & CO. 26

27 Income-tax S.56(2)(viia) applicable on acquisition of listed FCo.? S.14A Disallowance for Interest? Whether s.14a applicable for overseas investments? PRAVIN P. SHAH & CO. 27

28 Acquisition by Stock Swap Foreign SHs Issue of shares Takeover of shares Wall Four (FCO) Clothes Ltd (ICO) PRAVIN P. SHAH & CO. 28

29 Overseas Direct Invst. by Share Swap: ICo issues its shares in return for shares of FCo Auto Route for Outbound Valuation of FCo by Invst Banker No specific method FIPB permission for Inward Invst. Leg Consideration Other than Cash Undertaking from NR Shs. Sale of ICo shs. to be as per FEMA Regs. only PRAVIN P. SHAH & CO. 29

30 FEMA Issues Would Acq. of Unit constitute a Branch abroad for Ico? Overseas Branch treated as PRII Can have a Bank A/c abroad for normal business operations Branch cannot enter into Contract in Contravention of FEMA Cannot create Financial Liability, contingent / actual Surplus Funds Can t be invested abroad & must be repatriated Limit on Remittances to Bank A/c for Initial & Recurring Exp. Acqn. of Imm Property abroad for Business & Residential Purposes of staff allowed within above limits PRAVIN P. SHAH & CO. 30

31 Stamp Duty abroad on assets acquired Capital Gains Tax for Seller Limited Liability Angle Would expose Indian party to Unlimited Liability Consider a WOS which would acquire Sale of only IPRs, Plant, Brand by Jaguar Land Rover, UK to Tata Motors Ltd Cash Consideration of $2.3 billion agreed upon PRAVIN P. SHAH & CO. 31

32 Equity Funding- TML Cash Resources India SPV 1 (Singapore) Singapore Ford Motors UK Sale of Assets of Jaguar Land Rover SPV 2 (UK) Equity Funding UK PRAVIN P. SHAH & CO., CAs 32

33 On Goodwill on Merger Smiffs Securities Ltd. (SC) Excess Consideration paid over NAV of Transferor Intangible asset eligible for Depn. Question of valuation of goodwill not before SC On Acquired Goodwill on Slump / Asset Buys Excess consideration paid over Net Value of Assets Represents Intangibles acquired PRAVIN P. SHAH & CO. 33

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35 Growth Bank Foreign Co. Acquires Shares From Foreign & Indian Shareholders Wealth Indian Co. PRAVIN P. SHAH & CO. 35

36 Auto Route of FIPB Except in following: Sectors with caps Including: Defence Air transport ARC / banks Broadcasting Commodity Exchanges Credit Info Cos. Insurance Print Telecom / satellites PRAVIN P. SHAH & CO. 36

37 Sale by NR to NR - Auto Route of RBI: No Pricing Guidelines Sale by Resident to NR - Auto Route of RBI: Pricing Guidelines Listed Cos. Valuation of Company by CA / MB Form FC-TRS should be filed with documents Quadruplicate With Bank Undertaking from NR: He is eligible to Buy Copy of SPA PRAVIN P. SHAH & CO. 37

38 Auto Route of RBI available? Cases where Takeover Regs. attracted Co. in Financial Services / Banks, Insurances, NBFCs, Can Foreign Bank acquire Commodity Brokerages? Does RBI / FIPB permit such an acquisition? Have there been instances where such takeovers have been blocked by RBI / SEBI? PRAVIN P. SHAH & CO. 38

39 Indirect Entry into Real Estate Business Can a Foreign Co. acquire stake in an Indian Co. which has a Real Estate Subsidiary? Does it tantamount to indirect entry into a real estate business? PRAVIN P. SHAH & CO. 39

40 Sale of shares of NBFC-D change of control: Requires prior Approval of RBI s DNBS? Sale of shares of NBFC-ND Prior Public Notice? To be given by NBFC and Transferor / Transferee Notice must give reasons for sale, details of transferee 1 National & 1 local vernacular newspaper 40 PRAVIN P. SHAH & CO.

41 Indirect Change of Control / Dominant Promoter Group requires NOC: Broking Co. BSE / NSE DP NSDL / CDSL Com. Broker FMC, MCX, NCDX Housing Finance National Housing Board PRAVIN P. SHAH & CO. 41

42 Acquirer s SH Acquisition possible Takeover Code % Any % any time till 24.99% ~ Excess PA for 26% 25-75% Creeping Acqn. 5% in any FY ~ Excess PA for 26% 25-75% Can make a Voluntary Offer for 10% Over 75% Follow Delisting Regulations, 2009 PRAVIN P. SHAH & CO. 42

43 Acquisition of 54% from Promoters + 10% Preferential Issue would trigger TOR Growth would have to make an Open Offer for 26% Assuming full subscription, Stake of Growth would be 90% Max. Permissible Stake is 75% PRAVIN P. SHAH & CO. 43

44 Date of Public Announcement? MOU: 1 st April: Price Rs. 450 / sh BoD approved Pref. Issue: 10 th April: Price: Rs. 500/sh. EGM Resln.: 10 th May: Price: Rs. 600/sh Which Date to be adopted? PRAVIN P. SHAH & CO. 44

45 SELLER & SCENARIO LTCG STCG Tax for Domestic Sellers On-market & STT paid Nil 15% Off-market (Listed) Tax for Foreign Sellers 10% or 20% with Indexation Normal Tax Rates / 30% On-market & STT paid Nil 15% Off-market (Listed) 20% without Indexation or 10% - controversy 40% PRAVIN P. SHAH & CO. 45

46 Controversy Foreign Sellers selling Listed Shs. on off-market basis Q. Concessional rate of 10% available to FCo? (s.112) Mum ITAT No in BASF AG (Mum) Mum ITAT Yes in Chicago Pneumatic Tool Company (Mum) AAR Yes in Timken / McLeod Russel / Fujitsu Services Ltd AAR No in Cairns UK, Castleton Investment Judicial Controversy? PRAVIN P. SHAH & CO. 46

47 For Sale by Mauritius Co. Can Treaty benefits be denied if only TRC / Can Dept. apply LoB? CBDT s Cir Govt. Press Release 1 st Mar 13 Universal Music (Bom) TRC Sufficient for beneficial interest AAR ~ Ardex Investments / Dyanmic India Fund / Moody s Analytics / Smithkline Beecham / Castleton Investment / Armstrong World / Aditya Birla Nuvo (Bom) Decision based on Specific Facts Vodafone Amdt. Does not nullify Treaty Benefits Capital Gains not taxable by virtue of Indo-Mauritius Treaty Revisit the situation once GAAR comes into force PRAVIN P. SHAH & CO. 47

48 For sale by Singapore Co. Singapore + some other DTAA contains a LoB & Bona fide Clause USA Finland UK Saudi Arabia LoB UAE Iceland Lux. PRAVIN P. SHAH & CO. 48

49 If at all Tax payable by FCo. Both Buyer and Seller Located Abroad Payment received abroad but shares located in India Would Foreign Buyer have to deduct tax at source on payments made to Foreign Seller? PRAVIN P. SHAH & CO. 49

50 If at all Tax payable by FCo. Can AO impute CG if sale price lower than DCF Valn. Under FEMA Guidelines? If Sale to Associate Enterprises DCF can be used for determining ALP? Can Auto Approval of RBI be considered as deemed ALP? PRAVIN P. SHAH & CO. 50

51 MAT Is It applicable on Sale of Shares by Foreign Cos.? Does MAT only apply to Indian Cos.? Does it apply to Foreign Cos. only if they have a PE? PRAVIN P. SHAH & CO. 51

52 Return Foreign Seller has to file a Return in India even though no tax liability Necessary to have all facts in a wide amplitude AAR ~ VNU International / Dana Corp., Castleton Investment Ltd. Stamp Duty Transfer 0.25% if not in demat form If SPA executed Addl. Duty? PRAVIN P. SHAH & CO. 52

53 Can Growth AG set up an Indian WOS to buy Wealth? FDI in WOS requires FIPB Approval Status of WOS? Leveraging debt? Downstream Invst. Provisions if O& C by NRs Comply with Sectoral Caps, Pricing, Reporting conditions Can Fco issue its own shares as consideration to SH of Ico? PRAVIN P. SHAH & CO. 53

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55 Conditions for repatriation of FDI Funds by Real estate co. Minimum Capitalisation - Met 3 years lock-in: Expire on Oct % of Project must be developed? Can Hyper (NR) sell to another NR during lock-in Period? No outflow /remittance from Indian Co. Space Is lock-in qua Investor or qua Investment? PRAVIN P. SHAH & CO. 55

56 Can Hyper (NR) sell to Promoter (Domestic Investor) in 3 years? Can Hyper s shareholder (Cipher) sell the shares of Hyper to Viber (another NR) before 3 years? No transaction at Indian level Transfer of Foreign Investor offshore For such Indirect transfers consider impact of Amendment to s.9 Vodafone. PRAVIN P. SHAH & CO. 56

57 Buyback of Shares Reduction of Capital Buyout by Promoter Voluntary Liquidation PRAVIN P. SHAH & CO., CAs 57

58 Limits under Cos. Act 25% of Eq. + Free Reserves 25% of Eq. Capital per FY Can use Free Reserves, Sh. Premium Auto. Route of RBI (for Foreign PE) : Pricing G/L Max. Price DCF Guidelines What if Pricing G/L not met? Reporting? FC-TRS CA s Certificate on TDS / ITO s NOC PRAVIN P. SHAH & CO. 58

59 Buyback Tax payable by Unlisted Company 20% + SC + Cess No Tax in hands of Investor No credit of Buyback Tax to Investor Negates benefit of DTAA No benefit of coming through DTAA PRAVIN P. SHAH & CO. 59

60 Reduction of shares held by PE / FDI alone Shares cancelled and consideration paid Court process u/s. 100 of Companies Act Selective Reduction possible Auto Route of RBI subject to Pricing Guidelines PRAVIN P. SHAH & CO. 60

61 Price not higher than DCF Valuation Tax consequences Co. liable to pay DDT up to Accumulated Profits Excess of consideration over Cost & Dividend = LTCG No tax on Cap Gains if Treaty benefits available to Mauritian Investor Bennett Coleman (Mum SB) No Cap Gain or Loss PRAVIN P. SHAH & CO. 61

62 Automatic Route of RBI Pricing Guidelines: Valuation- Not higher than? DCF Reporting requirements? FC-TRS CA s Certificate on TDS / ITO s NOC PRAVIN P. SHAH & CO. 62

63 Put & Call Options by Promoters to PE? Are they valid under FEMA? RBI s stance Indirect ECB Thus, Not Allowed CFDIP Amdt. & Deletion What if Fixed Price Exit Not Allowed by RBI What if subject to Pricing G/L Should be permissible PRAVIN P. SHAH & CO. 63

64 Put & Call Options by Promoters to PE? Are they valid under SCRA? SCRA Applicable to Unlisted Companies also? SEBI s stance + Informal Guidance - No SCRA: 1995 Amdt. Options Trading Allowed 1961 Notification + P&H Decision - Allowed Bombay HC Yes / No / Yes Govt. Disinvestment Cases Balco - Sterlite Latest amendment to SCRA moved by Law Ministry - Allowing PRAVIN P. SHAH & CO. 64

65 Pre-emptive RoFR Tag Along Drag Along Russian Roulette Texas Shoot Out Dutch Auction PRAVIN P. SHAH & CO. 65

66 SEBI s View Not Allowed Bombay HC Decisions: Single Bench Not Allowed Division Bench - Allowed Do these Rights need to be incorporated in Articles? Yes. Can they be incorporated in A/A of a Listed Co.? Position under Companies Bill 2012 Allowed Do Special rights to PE by Listed Co. make it Promoter PRAVIN P. SHAH & CO. 66

67 VL is an Internal Affair No court process DDT up to Accumulated Profits Excess received over Cost is Capital Gains Can be in cash or in specie FEMA Requirements? Is it feasible in this case? PRAVIN P. SHAH & CO. 67

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69 Foreign Group Holding Co. Listing abroad NYSE, Euronext, FTSE, AIM Better valuation Makemytrip, WNS, Genpact Can retain funds abroad Most Important Pre-requisite Who would be the Promoter of Foreign Holdco? Holdco should not be wholly C&M not in India 69 PRAVIN P. SHAH & CO.

70 Structure for Transferring shares from R to NR Gift not allowed under FEMA Regulations Only allowed between close relatives with RBI Permission Hence, Gift ruled out Sale of shares by Indian Promoter to Holdco Auto Route under FEMA Price not lower than Preferential issue Pricing in case of sale of Listed shares to NR File Form FC-TRS 70 PRAVIN P. SHAH & CO.

71 Sale of shares by Indian Promoter to Holdco Can Listed Shares be sold on floor of St. Ex.? If yes, then no Tax on LTCG to seller If Off-market FMV Tax on Resident Seller 71 PRAVIN P. SHAH & CO.

72 Sale of shares by Indian Promoter to Holdco Can promoter below FMV Stamp 0.25% if not in demat form If SPA executed Addl. Duty in Maharashtra 72 PRAVIN P. SHAH & CO.

73 Takeover Code implications Transfer of shares held by Mr. A or his Investment Cos. to Holdco entirely held by him Consider Exemptions u./r. 10(1)(a) Or else approach SEBI for Specific Exemption u/r11(1) 73 PRAVIN P. SHAH & CO.

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