Tax Hotline June 21, 2010

Common Issues Involving Indian Acquisitions, Dispositions and Spin-offs

The recent global recession has done little to hamper the economic growth of India, which continues by leaps and bounds. Foreign investments have been flowing in at a steady pitch, including investments by U.S-based multinational corporations (“USMNCs”), which still form a significant percentage of investments into India. In such a situation it becomes important for tax practitioners to be aware of and consider the nuances of the Indian and US tax systems and their interplay in India-US cross border investment arrangements. Contrary to popular imagination, the most efficient structure is not always the structure with the least amount of tax incidence in India.

In step with our tradition of being a research-oriented law firm, we have attempted to analyze common issues involving Indian acquisitions, dispositions and spinoffs in relation to USMNCs. We attempt to provide an in-depth and incisive analysis of issues relevant to certain common transactions involving USMNCs such as: acquisitions of Indian subsidiaries, purchases of assets from an Indian target entity, considerations in entering into an Indian joint venture, merger transactions, and spinoffs involving an Indian target entity.

Some of the issues examined in this paper pertain to recent developments. For example in the Indian context, we discuss how these transactions are impacted by a recent amendment which subjects the purchaser of shares to Indian tax if the purchase price is less than fair market value, the use of limited liability partnerships for structuring of Indian investments, and the recent controversy relating to applicability of withholding tax on payments to non-residents. The other important issues discussed are the long standing but tricky issues involved in India-US structuring arrangements: whether United States tax credit should be available for the 'dividend distribution tax' levied upon companies in India, means of repatriation of profits that work from an Indian as well as US tax perspective etc.

We hope you will find the analysis both interesting and useful.

We invite your views and counter-views, and would be happy to provide any further information required. Please read the disclaimer carefully.

For the full text of the paper, please click here.


International Tax Team



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