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India and the Digital Economy – The Emerging P.E. and Attribution Issues

India and the Digital Economy – The Emerging P.E. and Attribution Issues

The exponential expansion of information and communication technology has made it possible for businesses to be conducted in ways that did not exist 15 years ago.  It has given rise to new business models that rely almost exclusively on digital and telecommunication networks, do not require physical presence, and derive substantial value from data collected and transmitted through digital networks.  So how and where should these companies be taxed?  Sunil Agarwal, an advocate and senior tax partner of AZB & Partners New Delhi, evaluates proposals already enacted in India and the U.K. and those under consideration at the level of the European Commission and E.U. member countries Italy, France, and Austria.  Should the digital tax be a consumption tax passed on to the final consumer or a minimum income tax based on global profits or substantial economic presence?  At this point, consensus does not exist.

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Strategies for Foreign Investment in Indian Start-Ups

Strategies for Foreign Investment in Indian Start-Ups

Foreign investment in Indian high-tech start-ups can yield significant profit opportunities for savvy investors.  During 2018, over 1,000 deals were struck, reflecting $38.3 billion in new investments.  If these investments turn out to be profitable, the tax exposure for the investor will vary with the form of the investment.  Choices of investment vehicles include (i) L.L.P.’s, (ii) Category I, Subcategory I alternative investment funds (“A.I.F.’s”) registered with the Securities Exchange Board, (iii) Category III A.I.F.’s, and (iv) trusts.  Each has unique tax consequences for investors receiving dividends and realizing gains.  Raghu Marwah and Anjali Kukreja of R.N. Marwah & Co L.L.P., New Delhi, explain the entities choices and the resulting tax costs.

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Tax Authorities Eye GSK-HUL Merger: Could Attract Tax on Long-Term Capital Gains and Brand Transfer

Tax Authorities Eye GSK-HUL Merger: Could Attract Tax on Long-Term Capital Gains and Brand Transfer

GSK Consumer Healthcare India (“GSKIndia”) is in the process of merging with Hindustan Unilever Ltd (“HUL”) inthe biggest deal in India’s consumer packaged goods space, valued at ap- proximately $4.5 billion. Although the transaction is structured to be tax-free for shareholders, plenty of room exists for the Indian tax authorities to assert tax from the companies: The transfer of a brand owned outside India may generate Indian tax to the extent its value stems principally from India. In addition, arm’s length pricing for royalty payments and accompanying with- holding tax issues also come into play. Sanjay Sanghvi and Raghav Kumar Bajaj of Khaitan & Co., Mumbai and New Delhi, discuss the global tax issues surrounding the transaction.

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Do India’s Amalgamation Revisions Prevent Misuse of Accumulated Losses?

Do India’s Amalgamation Revisions Prevent Misuse of Accumulated Losses?

India’s recent Finance Act addressed a tax planning device intended to reduce or eliminate the imposition of the Dividend Distribution Tax ("D.D.T") that applies when a corporation exercises the right to distribute dividends to shareholders.   The statue targets plans involving an amalgamation between a profitable company and a loss company and prevents the reduction of earnings when the profitable company is the acquiring company.  Does this mean that earnings can be reduced when the loss company is the acquiring company?  Differing views have been expressed by Indian tax advisers.  CA Anjali Kukreja of R.N. Marwah & Co L.L.P., New Delhi, examines both views and explains why one view is technically preferable.

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India Budget 2018-19

India Budget 2018-19

The Indian government announced its plans for the 2018–2019 budget year.  It is the last full budget before the 2019 Parliamentary elections and the first budget following the implementation of the landmark national G.S.T. regime.  Tax is reduced to 25% for domestic companies generating income of approximately $40 million or less.  The definition of the term “business connection,” the equivalent of a P.E. under domestic law, is broadened to cover agents having and habitually concluding contracts and circumstances where a nonresident has a significant economic presence.  A 10% tax is imposed on certain stock market gains.  Incentives are given to international financial services companies in the form tax exemptions for certain gains.  These and other provisions are explored by Jairaj Purandare of JPM Advisors Pvt Ltd, Mumbai, India.

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