Private Equity & Venture Capital Investments

Transcription

1 Private Equity & Venture Capital Investments Indian Tax & Regulatory Aspects May 20, 2015 CA. Amithraj AN / amithraj123@gmail.com CA / krishnaprasad.ca@gmail.com -- Amithraj AN

2 Contents Taxation of DVCF & FVCI Indian Fund Entity Form and Categories of AIF Typical Fund Structures Funding Instruments Listed Non Convertible Debenture (Listed NCD) Recent FEMA Developments Issue of Shares Companies Act Issue of Debentures Companies Act Repatriation Options 2

3 Section 1 Taxation of DVCF & FVCI

4 Taxation of AIF DVCF/ specified AIF are regarded as flow through transparent entities, in terms of Sections 115UB, 10(23FBA) and 10(23FBB) AIF Category I and Category II funds are entitled to transparent status AIF Category III set-up as Trusts also entitled to similar status, by virtue of being a Trust Status of Trust Specific & Determinate critical to ensure pass through status Pass through status nature of income in hands of AIF flows up to the investors Except for business profits and business or non-business losses Business income to be assessed in hands of AIF Taxes to be deducted at 10% (including exempt income?) Computation required on an annual basis Investors liable to tax on accrual basis and not on actual distribution of proceeds Non-resident investors are entitled to claim treaty benefits, with respect their share of income and categorisation of the same 4

5 Taxation of AIF Capital Gains & Other Income Investors Capital Gains & Other Income Pass through status Income taxable for investors, in proportion of the holding Capital Gains & Other Income 10% TDS No TDS AIF Cat I & II Business Income Treaty benefits can be claimed No capital gains tax on investors from Singapore/ Mauritius TDS on this 10% Possible to claim treaty benefit Section 90(2) SPV Business Income Taxable at AIF level Further distribution of such income not liable to tax No TDS on this income 5

6 Taxation of FVCI No specific exemptions under the IT Act or Section 10(23FB) Earlier FVCIs used to contend that their income is business income -- no tax liability in India, in absence of a PE The Finance Act No. 2, 2014 has amended the definition of capital asset Consequently, all incomes arising to FVCIs are liable to tax as capital gains Funds qualifying as residents in jurisdictions with favourable tax treaties can avail capital gains tax exemption Challenges in case funds are structured as transparent entities in host countries 6

7 Foreign Investors MAT Conundrum Proposal by Income-tax Department to collect MAT from FIIs, etc. Finance Act, 2015 gives MAT relief to foreign investors prospectively Prior years legacy issue FM has clarified that MAT will not be collected from treaty jurisdictions having capital gains exemption CBDT circular no coercive action should be taken, given Justice A.P. Shah committee has been constituted Bombay HC has granted stay in case of Aberdeen Global against MAT levy 7

8 Fund Managers Safe Harbour Fund Management in India not to trigger business connection for non-resident funds Subject to a number of conditions: Minimum number of members Restriction on maximum investment in investee company Management fee Should be paid at arm s length Limit on share of profits Other conditions specified 8

9 Investment Jurisdictions Investment in India through Corporate tax rate Capital Gains taxability in India Capital Gains taxability overseas Dividend taxability overseas Singapore 17% Not Taxable Not Taxable Not Taxable (Foreign Sourced Income exemption on fulfilment of certain conditions) Cyprus 12.5% Not Taxable Not Taxable Not Taxable as per domestic laws Netherlands 25% Not Taxable, unless shares sold to Indian resident Luxembourg 22.05% 21.63%/ 43.26% Mauritius 15% (80% deemed FTC) Not Taxable Participation Exemption Not Taxable Participation Exemption Not Taxable Participation Exemption Not Taxable Participation Exemption Not Taxable Not Taxable Not Taxable due to Underlying Tax Credit Max rate 3% Remarks Substance in Singapore to be demonstrated SGD 200k annual expenditure criteria Treaty renegotiation discussions Blacklisting concerns Capital Gains taxable in India if sold to Indian Resident No capital gains tax exemption Suitable for debt investments Tax Residency Certificate (TRC) and requirement to demonstrate substance, limited GAAR Cyprus notified under Section 94A of the IT Act Cyprus is also under OECD watch list 9

10 Section 2 Indian Fund Entity Form Categories of AIF

11 Indian Fund Entity Form Company Trust LLP Significant corporate law restrictions Challenges in raising funds and retirement of investors Rarely used form for DVCF/ AIF Lacks flexibility Almost all funds are set-up as Trusts No corporate law restrictions Ease in raising funds and retirement of investors Significant flexibility Deposit challenges for optionally convertible debt instruments and loans 99% of funds are structured as Specific Trusts Many aspects similar to Trust RoC restrictions in setting-up LLP as investment vehicles LLP will be a taxable entity, unless it qualifies as AIF Cat I or II fund 11

12 AIF Categories AIF Cat I AIF Cat II AIF Cat III Invest in start-ups or early stage ventures or social ventures or SMEs or infrastructure or specified sectors Venture capital funds, SME funds, social venture funds, infrastructure funds May be entitled for specific benefits by Government or Regulators Neither Category I nor Category III AIFs No leverage or borrowing, other than for operational requirements AIFs such as private equity funds No specific incentives or concessions are granted Employ complex or diverse trading strategies May employ leverage including through investment in listed or unlisted derivatives Hedge funds or funds focusing on short-term returns, open ended funds No specific incentives or concessions are granted 12

13 Section 3 Typical Fund Structures

14 Typical Fund Structures DVCF Domestic Investors Investors Investors Investors Indian Fund Management Services & Fees AMC Eligible Investments Eligible Investments Eligible Investments 14

15 Typical Fund Structures FVCI Investors Investors Investors Offshore Fund Management Services & Fees AMC Overseas Advisory Services & Fees India Eligible Investments Eligible Investments Investment Advisor Eligible Investments 15

16 Typical Fund Structures DVCF with Foreign Investors Investors FIPB Approval Overseas Investors Investors India Indian Investors Indian Fund Management Services & Fees AMC Eligible Investments Eligible Investments Eligible Investments 16

17 Typical Fund Structures DVCF with FVCI Investors Investors Investors No FIPB Approval Overseas FVCI Offshore Fund Management Services & Fees AMC India Indian Investors Indian Fund Management Services & Fees AMC Eligible Investments Eligible Investments Eligible Investments 17

18 Typical Fund Structures DVCF & FVCI Parallel Investments Investors Investors Investors No FIPB Approval Overseas FVCI Offshore Fund Management Services & Fees AMC India Indian Investors Indian Fund Management Services & Fees AMC Eligible Investments Eligible Investments Eligible Investments 18

19 Key Aspects in Domestic Fund Structure Constitution of the Fund Constitution of the Manager Company / LLP Carry structure for Manager employees Business Income v Capital Gains Deductibility of expenses Differential fee / carry structures In case of Trust Determinate Status In case of Trust Permissibility to do downstream LLPs Companies Act Deposit Regulations Deferral of taxability / withholding Reporting to investors Investment in Associates Prior investor approval 19

20 Key Aspects in Offshore Fund Structure Jurisdiction for establishing Fund / AMC Tax Residency / PE Need for India Advisory Company / LLP Exit strategies Carry/ Management Fee Sharing Reward planning Regulatory approvals Regulatory arbitrage and efficiency Tax efficiency on profit repatriation Revenue authorities approach & MAT liability Co-investment vs. Unified Ownership of India Advisory Company and entities Interplay between various entities 20

21 Issues for Discussion Investment by DVCF having majority foreign investment Whether Downstream Investment? Payment of interest to DVCF Whether WHT is applied as payment to Resident or Non-Resident? Withholding tax obligations on DVCF Income-tax return filing 21

22 Section 4 Funding Instruments

23 Funding Instruments Equity CCPS OCRPS CCD OCD 23

24 CCPS Term of the instrument Convertible into equity shares within 20 years typically 4 to 5 years considered Nature of Investor DVCF/ FVCI Coupon Typically nominal coupon (say %) required Companies Act requirement to distinguish against equity shares FEMA Whether downstream investment? Allotment pricing Allotment of CCPS at Par or Premium No significant difference in outcome Conversion to be at fair value Security No charge on assets Possible to have put option with the promoters CCPS will rank lower than Creditors but higher than equity Exit Options (a) Transfer of CCPS to Promoters, prior to conversion at a fixed IRR (b) Conversion of the instrument into equity shares or other instruments at a fixed IRR (c) Exchange against specific investments held by Investee company/ Promoters (d) IPO (post conversion into equity) Tax Implications (a) DVCF Perspective Gains on transfer of CCPS should be taxable as capital gains short term/ long term Benefit of DTAA could be claimed by the FVCI in DVCF for capital gains exemption Conversion of CCPS into equity shares could be liable tax, subject to treaty Step-up in cost may be possible (b) FVCI Investor Perspective Capital gains exemption under the treaty can be availed (c) Company Perspective No implications 24

25 OCRPS Term of the instrument Redeemable/ convertible into equity shares within 20 years typically 4 to 5 years considered Nature of Investor DVCF Coupon Typically nominal coupon (say %) required Companies Act requirement to distinguish against equity shares FEMA Whether downstream investment? Allotment pricing (a) Allotment of OCRPS at Par (b) Creation of CRR on redemption of OCRPS to the extent of par value Significant increase in authorised share capital required to accommodate issue of OCRPS Conversion to be at fair value Allotment of OCRPS at Premium Security No charge on assets Appropriate amount of premium to be determined based on conversion ratio Face value of shares to be allotted on conversion > face value of OCRPS being converted CRR to be created only to the extent of face value of OCRPS redeemed Premium on allotment of OCRPS can be utilised to fund the premium on redemption of OCRPS No Section 56(2)(viib) on allotment of shares at a premium to venture capital funds Lower increase in authorised share capital required Possible to have put option with the promoters OCRPS will rank lower than Creditors but higher than equity 25

26 OCRPS Term of the instrument Redeemable/ convertible into equity shares within 20 years typically 4 to 5 years considered Exit Options (a) Transfer of OCRPS to Promoters, prior to redemption/ conversion at a fixed IRR (b) Redemption of the instruments at a fixed IRR (c) Conversion of the instrument into equity shares or other instruments at a fixed IRR (d) Exchange against specific investments held by Investee company/ Promoters (e) IPO (post conversion into equity) Tax Implications (a) DVCF Perspective Gains on transfer/ redemption of OCRPS should be taxable as capital gains short term/ long term Benefit of DTAA could be claimed by the FVCI in DVCF for capital gains exemption Applying the same ratio, gains on redemption of shares at a premium should be regarded as capital gains Potential risk of deemed dividend implications on redemption at premium Conversion of OCRPS into equity shares could be liable tax, subject to treaty Step-up in cost may be possible (b) FVCI Investor Perspective Capital gains exemption under the treaty can be availed (c) Company Perspective Pro-rata premium payable on redemption not entitled for deduction Potential deemed dividend implications Withholding tax provisions should not apply on redemption payment to resident Accounting Coupon payment/ Premium on redemption of OCRPS shall not construed as interest payment. Hence, no hit in the P&L a/c Securities premium can be utilised for redemption premium 26

27 CCD Term of the instrument Convertible into equity shares within 10 years typically 4 to 5 years considered Nature of Investor DVCF/ FVCI Coupon Typically nominal coupon (say 0.01%) FEMA Whether downstream investment? Allotment pricing (a) Allotment of CCD at Par (b) Interest can be paid on entire amount invested Possible to undertake repatriation of significant interest Conversion to be at fair value Creation of DRR or CRR should not be required for CCD Allotment of CCD at Premium Appropriate amount of premium to be determined based on conversion ratio Face value of shares to be allotted on conversion > face value of CCD being converted Interest payable only on par value of CCD Security Can have charge on assets No Section 56(2)(viib) on allotment of CCD Possible to have put option with the promoters Typically CCD will rank lower than Creditors but higher than equity and preference shares Exit Options (a) Transfer of CCD to Promoters, prior to redemption/ conversion at a fixed IRR (b) Conversion of the instrument into equity shares or other instruments at a fixed IRR (c) Exchange against specific investments held by Investee company/ Promoters (d) IPO (post conversion into equity) 27

28 CCD Term of the instrument Convertible into equity shares within 10 years typically 4 to 5 years considered Tax Implications (a) DVCF Perspective Gains on transfer of CCDs should be taxable as capital gains short term/ long term Benefit of DTAA could be claimed by the FVCI in DVCF for capital gains exemption language of treaty to be assessed Conversion of CCD into equity shares not liable to tax Cost of shares goes back to CCD cost (b) FVCI Investor Perspective Capital gains exemption under the treaty can be availed to be assessed (c) Company Perspective Periodic interest payment allowable as deduction Accounting Coupon payment construed as interest payment Companies Act Maximum tenure 10 years? Deposit if convertible after 5 years, if received from a Trust Can CCD be converted into Preference Shares 28

29 OCD Term of the instrument Redeemable/ Convertible into equity shares within 10 years typically 4 to 5 years considered Nature of Investor DVCF Coupon Typically nominal coupon (say 0.01%) FEMA Whether downstream investment? Allotment pricing (a) Allotment of OCD at Par (b) Interest can be paid on entire amount invested Possible to undertake repatriation of significant interest Conversion to be at fair value Creation of DRR is required Allotment of OCD at Premium Appropriate amount of premium to be determined based on conversion ratio Face value of shares to be allotted on conversion > face value of OCD being converted Interest payable only on par value of OCD Security Can have charge on assets No Section 56(2)(viib) on allotment of OCD Possible to have put option with the promoters Typically OCD will rank lower than Creditors but higher than equity and preference shares Exit Options (a) Transfer of OCD to Promoters, prior to redemption/ conversion at a fixed IRR (b) Redemption of the instruments at a fixed IRR (c) Conversion of the instrument into equity shares or other instruments at a fixed IRR (d) Exchange against specific investments held by Investee company/ Promoters (e) IPO (post conversion into equity) 29

30 OCD Term of the instrument Convertible into equity shares within 10 years typically 4 to 5 years considered Tax Implications (a) DVCF Perspective Gains on transfer of OCDs should be taxable as capital gains short term/ long term Benefit of DTAA could be claimed by the FVCI in DVCF for capital gains exemption language of treaty to be assessed Conversion of OCD into equity shares not liable to tax Cost of shares goes back to CCD cost Redemption of OCD at premium will be construed as interest payment Treaty benefit can be claimed with regard to interest income (b) FVCI Investor Perspective Capital gains exemption under the treaty can be availed to be assessed Interest taxation and treaty benefit (c) Company Perspective Pro-rata premium payable on redemption entitled for deduction Withholding tax provisions may apply on redemption payment to resident Accounting Coupon payment construed as interest payment Significant impact on P&L on proportionate premium Companies Act Maximum tenure 10 years? Deposit if received from a Trust 30

31 Section 5 Listed Non Convertible Debenture (Listed NCD)

32 Listed NCD Schedule 5 of FEMA 20 governs foreign investment under NCD route SEBI registered FPIs (including FIIs and QFIs) are allowed to invest in listed NCDs or bonds, government securities/ treasury bills, commercial papers, units of mutual funds, primary issue of NCDs, etc. Primary issue with the condition that NCDs/ Bonds are committed to be listed within 15 days of investment. Terms of offer to have a clause that if not listed within 15 days, the issuer shall immediately redeem/ buyback SEBI (Foreign Portfolio Investors) Regulations, 2014 govern investment by FPIs Three categories of FPI Investors: CAT I : includes Government, Govt agencies, sovereign funds, etc. CAT II : includes mutual funds, investment trusts, insurance companies, etc. CAT III : includes corporate bodies, trusts, foundations, individuals, etc. NRIs cannot register as FPIs Person seeking FPI registration should engage a Designated Depository Participant (DDP) for obtaining the registration DDP shall also act as a custodian of securities for the FPI 32

33 Listed NCD Any Indian company (private or public) can issue NCDs on a private placement basis NCDs are listed in Wholesale Debt Market (WDM) segment of stock exchange Listing not necessary if investment is in infrastructure sector NCDs subscribed/ purchased by FPIs are not treated as ECB No end-use restrictions and also conditions applicable to FDI investors under FDI policy would not apply No restrictions on the interest remittances and also on redemption However, NCDs with a maturity of less than one year are regulated by RBI NCDs can be secured against mortgage of assets of the issuing company NCD issue to comply with SEBI (Issue and Listing of Debt Securities) Regulations Compliance with Company Law requirements Private placement related provisions Does it amount to acceptance of deposit? Stamp duty implications under Indian Stamp Act 0.05% per year of the face value of the debenture, subject to a maximum of 0.25% or Rs. 25 lakhs, whichever is lower 33

34 NCD Issue Process Board Approval for allotment of NCD and convening of EGM Obtain ISIN for the Company from the depository (NSDL/ CDSL) Shareholders Approval for allotment of NCD Finalisation of Information Memorandum, debenture trust deed Appointment of credit rating agency, RTA and debenture trustee Subscription and allotment of NCDs Obtaining rating certificate for the NCD issue Obtain In-principle approval for listing from the stock exchange Filing of listing agreement and other documents with stock exchange and NCD listing Registration of charge and other RoC filings Estimated Time Frame : 6-8 Weeks (Approx) 34

35 Section 6 Recent FEMA Developments

36 Pricing of FDI Instruments with Optionality RBI has recently issued a Circular w.r.t Put & Call options in Equity/ CCPS/ CCDs RBI was not comfortable with these options in SSA/ SHA takes color of debt Docomo stake sale stuck before RBI on same aspect Optionality clause will oblige buy-back of securities from investor at the price prevailing/ value determined at the time of exercise of option RBI has further specified that there shall not be an assured price/ return for exit Is only buy-back by the Company permitted or purchase by Promoter also possible? For Listed Companies at prevailing market prices For Unlisted Companies As per RBI Pricing Norms Minimum lock-in 1 year (few sectors may require a longer lock-in) 36

37 Issue of Partly Paid Shares and Warrants Partly paid equity shares Partly paid shares now FDI compliant Pricing to be determined upfront 25% of consideration to be paid upfront (balance within 12 months) Can be received after 12 months, if issue size > 500 cr and appoint monitoring agency Warrants Warrants now FDI compliant Pricing of warrants and price/ conversion formula to be determined upfront 25% of consideration to be paid upfront (balance within 18 months) Price for conversion not to be lower than fair value at the time of issuance of warrants Investee company can receive more than pre-determined price 37

38 Section 7 Issue of Shares Companies Act Sections 42, 62, 63, 55 and 54

39 Types of Share Issue Rights Issue Preferential Issue/ Private Placement Preference Shares Bonus Shares Sweat Equity Shares/ ESOPs ADR/ GDR Public Issue 39

40 Rights Issue Covers Allotment of Equity Shares and Preference Shares Rights Issue Offer Document 15 to 30 days * Deemed Right to Renounce, unless Articles provide otherwise Shareholders may: Subscribe Decline Renounce Company may allot shares on Subscription or on Renouncement OR Board may dispose the shares in a manner not disadvantageous Declined by Shareholders Applicable to Private and Public Companies * Can be shorter period, if approved by 90%+ shareholders in a Private Company Proposed Amendment 40

41 Rights Issue Key Points Pricing guidelines not applicable same position under FEMA Allotment to persons other than shareholders requires Special Resolution Preferential Allotment Private Placement guidelines to be complied with for Preferential Allotment Not applicable on conversion of loan or convertible debentures Special resolution shall have been passed earlier Separate compliance prescribed for ESOPs 41

42 Preferential Issue/ Private Placement Special Resolution 12 month time limit Allotment Price Registered Valuer s valuation Maximum allottees 200 per FY across all securities Invitation sent to select group of persons Ongoing allotments of other securities to be completed before new issue Consideration not to be collected in cash Allotment within 60 days or refund within 15 days Application money cannot be utilized until allotment Minimum size of allotment per person INR 20k Face Value 42

43 Preferential Issue/ Private Placement Key Points Covers allotment of Equity Shares, Convertible Preference Shares and Convertible Debentures These provisions apply to private companies as well Applicable to new companies as well (2 year time limit done away) QII and employees excluded from 200 limit Valuation to be carried out by a CA with 10 years in practice, until Registered Valuer provisions are notified Delay in refund of application money beyond 15 days 12% interest p.a. No public advertisement can be given Partly paid-up securities cannot be allotted on preferential basis Consideration for non-cash allotment to be valued by Registered Valuer List of select group of persons to whom invitation was sent to be filed with RoC Return of allotment to be filed with RoC within 30 days 43

44 Modes of Allotment of Shares to New Shareholders Rights Issue and Failure of the same OR Preferential Allotment Conditions Not Applicable Rights Issue and Renunciation by Existing Shareholders OR Preferential Issue/ Private Placement 44

45 Preference Shares Shares with have preferential right with respect to: Payment of dividend Repayment of capital, in the case of a winding up Possible to have participating preference shares dividend and/ or capital Authorized by Articles and approved through Special Resolution Maximum tenure 20 years Infrastructure companies can issue with maximum tenure of 30 years Minimum 10% annual redemption after 20 years, at the option of preference shareholders Redemption out of free reserves or proceeds of fresh issue CRR requirement for redemption out of free reserves CRR can be utilized for allotment of bonus shares Fresh preference shares can be allotted for redemption of earlier preference shares 3/4 th shareholders approval Tribunal approval 45

46 Section 8 Issue of Debentures Companies Act Section 71

47 Issue of Debentures Whether Debentures qualify as Deposits Yes No Comply with Acceptance of Deposit Rules Comply with Issue of Debenture Rules If Deposits are covered under Exceptions No explicit compliance requirements 47

48 Deposits Deposit includes any receipt of money by way of deposit or loan or in any other form, by a company Key exceptions to deposits Amounts received from: Foreign collaborators, foreign bodies corporate and foreign citizens in compliance with FEMA Inter-corporate loans Share application money or advance towards allotment of securities upto 15 days after lapse of 60 days By a company from a director declaration Bonds/ debentures fully secured with first charge on non-intangible assets Debentures convertible within 5 years Promoters by way of unsecured loan in pursuance of the stipulation of any lending financial institution or bank post repayment of bank loan, loans by promoters become deposits 48

49 Issue of Debentures Covers allotment of convertible/ non-convertible debentures Debentures shall not carry voting rights Debentures to be mandatorily Secured? Debenture Redemption Reserve to be created Prior appointment of Debenture Trustees Invitation to public or members exceeding 500 Possible to cap liability of the Debenture Trustee 49

50 Issue of Debentures Tribunal on application by Debenture Trustee may restrict the company from incurring further liabilities Tribunal can intervene on failure to redeem Debentures Specific enforcement for redemption possible 50

51 Issue of Debentures Secured (Rules) Maximum tenure 10 years Infrastructure companies Upto 30 years Secured against specific movable or immovable property Value of Security > Debenture Amount Restrictions on who can be a Debenture Trustee Power to appoint nominee director 2 consecutive defaults in interest payment or default in creation of security or redemption DRR specifics: 50% of value before commencement of redemption 15% of debentures to be redeemed to be invested in specified securities DRR not required for convertible portion 51

52 Deposits/ Debentures Points for Discussion CCD from companies, convertible after 5 years Deposit or Debentures Unsecured Debentures issued to corporates 10 year tenure applicable or not Share application money received from corporates, outstanding for more than 75 days Deposit or general corporate exemption applicable Advance for supply of goods or services > 365 days from corporates whether deposit 52

53 Section 9 Repatriation Options

54 Repatriation Options Regulatory Challenge Interest Buy-back Dividend Royalty/ FTS Tax Efficiency 54

55 Tax on profit repatriation Parent Dividend No Indian WHT Outside India 100% equity Indian Sub Co Profit Tax DDT [17.30% of PAT] Dividend % Other efficient modes of repatriation like Interest, Royalty, Fees for technical services etc. may be considered 55

56 Repatriation of funds Tax cost analysis Instrument Mode Jurisdiction Effective Tax Cost Decision Making Equity (Revenue) Dividend Any 40% Equity (Capital) Capital Gains Cyprus/ Singapore/ Mauritius/ 0% Debt (Revenue) Interest Cyprus 5% Singapore 5% Mauritius 5% Debt (Capital) Repayment Any 0% Technical Services/ Royalty Technology fees to JV Partner Any Treaty rate/ 10%* * Proposed by Budget 2015 to be reduced from 25% to 10% 56

57 Buy-back of Shares Buy-back of shares by domestic unlisted companies taxable at 20%++ Tax will be levied on the company buy-back shares on Net Consideration Net Consideration = Buy-back consideration Less Consideration received on allotment of shares DTAA benefits neutralized Mauritius, Singapore structures stand nullified Particulars INR in Crs. Particulars INR in Crs. Share Capital 100 Free Reserves 400 Shareholder Funds 500 Max. permissible buy back (25% on Share capital & Free reserve) Less: Amount received at time of issue of shares (Assuming share issued at face value) Distributed income Tax on buy back of 22.66% Repatriation of Fund by Dividend or Buyback of Shares? 57

58 Repatriation Option Capital Reduction Capital Reduction - Effective tool for restructuring F Co. India Co. to reduce capital Modes of effecting capital reduction Repaying paid up equity capital, which is in excess of needs of the Company Cancel paid up equity capital which is lost and unrepresented by assets Outside India India 100% India Co. Cancel equity capital by reducing liability on unpaid share capital Tax implications Distribution attributable to accumulated profits - Company to pay dividend distribution tax to the extent of accumulated profits as per the provisions of section 2(22)(d) Distribution attributed to capital (except capitalized profits) - Capital gains tax for shareholders CIT v G. Narasimhan, (1999) 236 ITR 327 (SC) 58

59 Thank You CA. Amithraj AN + 91 (0) amithraj123@gmail.com CA krishnaprasad.ca@gmail.com Views expressed in the presentation are personal