CROSS BORDER RESTRUCTURING
TAX AND LEGAL ISSUES
CASE STUDY
11TH October 2013
BELA MAO
COUNTRY TAX LEAD
SHELL INDIA MARKETS PRIVATE LIMITED
General points for consideration
 Under Indian law

Tax implications in India




Tax neutral merger?
Impact on tax attributes?
GAAR
Transfer pricing

Stamp duty implications?

Key regulatory implications





Under foreign law


Capital gains tax

Deemed dividends implications

Any restrictions under foreign law
impacting the merger
Companies Act, 1956
Companies Act, 2013
Competition Act, 2002
SEBI
FEMA
Cross Border Restructuring - Tax and Legal Issues
2
Merger of foreign companies – Base case
Facts
F Co

Issue of shares


Hold Co
F Co 1
Merger
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

Outside India
India
X Co
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
3
Merger of foreign companies – Base case (contd…)
Implications (contd …)
F Co
Issue of shares


Hold Co
F Co 1
Merger
Outside India
India
X Co

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
4
Merger of foreign companies – Cash Consideration
Facts
F Co
Cash



Hold Co
F Co 1
Merger
Outside India
Implications


India

X Co
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

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
5
Merger of foreign companies – Cash Consideration (contd…)
Implications (contd …)
F Co
Cash
Hold Co

Would there be GAAR considerations if Hold Co is
merging into a jurisdiction with whom India has a
more favourable treaty?
F Co 1
Merger
Outside India
India
X Co
Cross Border Restructuring - Tax and Legal Issues
6
Merger of foreign holding company into Indian subsidiary
Facts
F Co


Hold Co merges into X Co
Resultantly, F Co has immediate holding in X Co
Implications
Hold Co




Outside India
India

X Co

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
7
Merger of Indian subsidiary into Hold Co
Facts
F Co


X Co merges into Hold Co
F Co continues to be holding company of Hold Co
Implications
Hold Co



Outside India

India
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?
X Co
Cross Border Restructuring - Tax and Legal Issues
8
Merger of Hold Co with ultimate Hold Co
Facts
F Co


Hold Co merges into F Co
Resultantly, F Co has immediate holding in X Co
Implications
Hold Co


Outside India

India

X Co

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 favourable treaty
country?
Other TP implications? ‘Business restructuring’ between
2 NR AEs?
Cross Border Restructuring - Tax and Legal Issues
9