This document provides an overview of key Indian regulations related to income tax, foreign exchange management, and GST compliance for businesses. It discusses regulations around overseas direct investments, indirect transfers of assets in India, place of effective management, permanent establishments, transfer pricing, employee stock ownership plans, and an upcoming equalization levy on digital services. The presentation was delivered by a panel of experts on effectively navigating these complex compliance requirements in India.

1. Navigating Indian Regulations
Effective Compliance: Income Tax; RBI/FEMA; GST
Varun Shoor
Pallav P Narang
Sridhar R
www.saasboomi.com

2. The Panel

3. The Panel
Pallav P Narang
CNK RK
pallav@cnk-rk.co
9910124927
Varun Shoor
Kayako
Sridhar R
Grant Thornton
sridhar.r@in.gt.com
99400 83183

4. First
Some Background

5. Exchange Controls Laws (FEMA) + Tax laws +
Companies law!
FEMA
• Regulates capital account transactions;
• Generally, permits current account transactions;
• Goes by your “intention”
• What is
• Heavy penalties
• ED Gremlins
What cannot be done directly
cannot be done indirectly

6. • Aggressive
• Legislative intent Vs implementation
• Global information exchange
• Don’t miss compliance and disclosures
• Resident for tax purposes =/ Resident under FEMA

7. FEMA
Overseas
Investment
Regulations

8. Flipping
Resident
Shareholders/
Founders
F Co.
100%
I Co.
Outside India
India
Non-Resident
Shareholders
I Co.
Resident
Shareholders/
Founders
Non-Resident
Shareholders
x% y%
y%
x% Outside India
India
Before
After

9. Key Regulations
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ODI : Overseas Direct Investments
Automatic route :
Not banking business or real estate
Upto 400% of net worth
All investment through one AD bank
Permitted Sources:
FX purchased through AD
Capitalization of exports
Utilization of ECBs
Share Swaps
ADR/GDR proceeds
EEFC balances
LRS
Credit Cards
Cash
- Only for individuals
- USD 250K per year
- For any purpose
Obligations:
Co’s to submit share certs
APR – Annual
- Not applicable on LRS investments

10. New OI Framework
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11. 11
 Investment in foreign securities other than
ODI, excluding:
 Any unlisted debt instruments
 Any security which issued by a
person resident in India who is not in
an IFSC
OPI
ODI
 Acquisition of unlisted equity capital of a
FE
 Subscription to the MOA of a FE
 Investment in ≥ 10% of Paid-up Equity
capital of a Listed FE
 Investment in < 10% of Paid-up Equity
capital of a Listed FE, with control*
Once ODI, always ODI
New OI Framework

12. Round Tripping
“No person resident in India shall
make financial commitment in a
foreign entity that has invested or
invests into India, at the time of
making such financial commitment
or at any time thereafter, either
directly or indirectly, resulting in a
structure with more than two layers
of subsidiaries”
Singapore
I Co. 2
Delaware
India
I Co.
Outside India
Interpretations
1. Whether the FE cannot have more than two layers anywhere in
the world?
2. Whether to consider the Indian Investor as the starting point?
3. Whether to only consider subsidiaries within India in the structure?

13. Sample Strcutures
Structure 1
Outside India
India
I Co.
Resident
Shareholders
/ Founders
Non-Resident
Shareholders
Non-Resident
Shareholders
Resident
Shareholders/
Founders
F Co.
100%
I Co.
Resident
Shareholders/
Founders
F Co.
I Co.
Non-Resident
Shareholders H Co.
Structure 2 Structure 3
Align your operations to holding structure
F
Co.(s)
Outside India
F Co.(s)
F
Co.(s)

14. TAX
PE
PoEM
SEP
TP
Angel Tax
Indirect Transfer
Equilization Levy
ESOP

15. PE
Permanent
Establishment

16. Double tax Avoidance Agreements (Treaty) /
Multilateral Instruments
Domestic law of each country
(See : Significant Economic Presence)
Fixed Place PE Specific PE Installation PE Service PE
Individuals
Corporates
Usually based on number of days stay
in a country
Fixed
Place
Specific Installation Service Agency
Types of PE

17. PoEM
Place of
Effective
Management

18. What is PoEM ?
• Does not rhyme !
• Place of Effective management :
• A place where key management and commercial decisions that are necessary for the
conduct of business of a foreign company are, in substance made.
• In India - effective from Year 2017-18. Similar laws exist in UK, Australia etc.
• Consequence : All income of the foreign company will be taxable in India at the rate
of 40%+SC+EC.
• PoEM guidelines do not apply to a foreign company having turnover or gross receipts
of INR 50 crores or less in a year (Indian tax year).
• Test is applied differently for ‘’Active’’ and “Passive” businesses
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19. What is PoEM ?
“Active’’ if (cumulatively):
 passive income (dividend, royalty, interest) is :
 total assets situated in India is :
 total number of employees situated in India or resident
in India are :
 payroll expenses incurred on such employees is :
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<50%
Active
Yes
No
POEM shall be presumed to be outside India if
majority of board meetings are held outside India
and such Board exercises all powers of
management
WHO Test
WHERE Test

20. PoEM IMPACT
Company considered Indian Tax resident
Subjected to Tax in India
Rate : 40%
Mitigation measures ?

21. SEP
Significant
Economic
Presence

22. SEP : Significant Economic Presence
A transaction in respect of any goods, services
or property
Greater than prescribed threshold of Indian
users
INR 20 Million
300,000
Treaty Benefits Still Available

23. PE/ SEP IMPACT
Incomes pertaining to PE/SEP in Indian Tax net
Rate : 40%
Mitigation measures ?

24. Efficient funding and profit repatriation
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Fixed Place PE Specific PE Installation PE Service PE
Dividend
Buy Back
/ Transfer
Interest
Royalty
/ Mgmt
Fee
Repatriation
Routes
Can work together
Resident
Shareholders/
Founders
F Co.
Outside India
India
Equity
Repatriation

25. Transfer Pricing

26. Transfer Pricing
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- Nothing but tax authorities trying to attribute income and
profits to the right jurisdiction disregarding the relationship
that influences pricing / contacts;
- Consequences :
• Tax authorities get the powers to compute income/
allow expenses;
• Required to maintain documentation and report ;
• Independent certification;
• Adjustments can be painful;

27. 27
Arms Length
Functions Assets Risks

28. Indirect Transfers

29. Indirect Transfer
• Income from the transfer of a capital asset situated in
India is taxable in India
• A foreign company’s share is deemed to be situated
in India, if the share derives its value substantially
from underlying assets located in India,
• Tax authority has prescribed thresholds:
- value of the assets located in India on date of
transfer exceeds INR 10 crore, and
- India assets represent > 50% of the value of all the
assets of the foreign company
• Compliances –
- Reporting
- Tax Deduction at Source
- No Treaty relief
S Co.
I Co. India
Singapore
F Co.
Mauritius
Buyer
USA
M Co.
US Co.
Seller

30. ESOP
Employee Stock
Ownership Plan

31. ESOPs
Resident can acquire shares :
• Free of Cost basis (ie. no
remittance from India)
• Employee / Director of I. Co.
can purchase equity shares
of parent company within
USD 250,000 limit
• LRS remittance
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Indian Income Tax
Foreign
tax law
Company law
Exchange
Control
law
F Co.
I Co.
• Promoters holding >10%
cannot participate;
• Foreign employees can
participate ;
• 1 year vesting period;
• Buy back possible;

32. ESOPs - Reporting
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RBI
Annexure IV
- No of shares
- Number of emp/directors
- Outward remittance

33. Equalization
Levy

34. Equalization Levy
• On digital (internet) economy
• A levy to tax payments received by non-residents that was
otherwise not getting taxed in India;
• Applies on specified services provided to Indian entities
• Not in the nature of income tax
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Specified
Services
• Online advertisement;
• Any provision for digital advertising space or any other facility or
service for online advertisement;
6%
Burden of
Compliance
• Remitter of payment to comply with filing and reporting to Tax
authorities
E Commerce
Supply of
services
• Consideration received by e-commerce operator from e-
commerce supply of services provided to an Indian resident
• @ 2%

35. Q & A
Time - Time

36. www.saasboomi.com
Thank You !
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