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International Tax Structuring

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International Tax Structuring Tax Structuring Tax Structuring is defined as a form into which business or financial activities may be organized to minimize taxation. – PowerPoint PPT presentation

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Title: International Tax Structuring


1
International Tax Structuring
2
Tax Structuring
  • Tax Structuring is defined as a form into which
    business or financial activities may be organized
    to minimize taxation.
  • An important part of tax structuring is deciding
    how to set up a business before commencing
    operations. A business may run as a sole
    proprietorship, general partnership, limited
    partnership, corporation or limited company.  
  • International tax structuring means different
    things to different peopledepending upon their
    responsibilities within a company but if its
    done correctly it can relieve (sometimes) onerous
    financial burdens that can inhibit a companys
    development.
  • An integrated international tax program which
    takes careful account of all of a companys tax
    exposures can free up precious capital that can
    be redirected to the firms long-term benefit.

3
Issues Underlying Tax Structuring
  • Tax Residency
  • Permanent Establishment
  • Transfer Pricing
  • Substance
  • Due Diligence
  • Anti Avoidance/Abuse/Tax Risk Management
  • Treaty Shopping/WHT issues

4
Cross border transaction imperatives
5
Key tax and financial considerations
6
The Five Questions of Tax Structuring
  • What should you acquire (assets or shares)?
  • How should you acquire it (holding company
    issues)?
  • How will you pay for it (tax efficient funding)?
  • How will you use profits (maximizing dividend
    flows)?
  • What if things dont work out (tax efficient
    exit)?

7
What should you acquire?
  • Share Purchase
  • Asset purchase
  • Merger, Demerger, etc

8
Asset Purchase
  • Target Structure
  • Acquisition Structure

Parent Company
Acquirer
Parent Company
Holding Company
Holding Company
Acquisition Co.
Target Company
Target Company
Share Purchase
  • Acquirer sets up Acquisition Company in Target
    Country
  • Acquisition Company purchases Assets/Business of
    Target Company for cash consideration

9
How should you acquire it ?...
  • SPV Options
  • Company
  • Branch / Liaison office
  • Trust
  • LLPs
  • Applicable Tax Laws
  • Host Country
  • Target Country
  • SPV Jurisdiction
  • Tax Treaties

10
Need for an Overseas Holding Company (OHC)
  • Taxation of foreign dividends in India
  • Retention of profits in offshore jurisdiction
  • Deferment of tax
  • Greater flexibility for inter-company transfer
    of funds and for setting up operations in other
    overseas jurisdictions
  • Future restructuring easy
  • Better tax regime within European Union

11
Investors Considerations when choosing OHC
  • Receive dividends and capital gains tax free
  • - Corporate Tax (Participation)
    Exemption
  • Tax efficient repatriation of profits
  • - Reduced Witholding of Profits
  • Controlled Foreign Company (CFC) legislation
  • Finance companies mechanism
  • Flexible reorganizations
  • Reliable tax authorities - Rulings
  • Non tax driven considerations, e.g. IPO,
    exchange control regulations, protection IPR

12
How should you acquire it ?
  • Considerations
  • Capital Gains
  • Local taxes and underlying credit of foreign
    taxes
  • Withholding Taxes Interest, Dividends
    and Royalties
  • Controlled Foreign Corporation Rules
  • Thin Capitalization Norms
  • - Debt Vs Equity
  • Ability to push up / down debt cost
  • Valuation of intangibles
  • Accounting (Consolidation)
  • Stamp Duties

13
How will you minimize tax incidence on Profits ?
  • Direct Tax
  • Tax Incentives
  • Utilisation of B/f tax losses
  • Group Relief
  • Revenue
  • - Operating arrangements Revenue vs
    Capital
  • Expenses
  • - Interest - Double dip
  • Treaty Shopping
  • Indirect taxes
  • Stamp Duty
  • Integration
  • Indirect Taxes
  • - Tax arbitrage from VAT via export and import
  • Transfer Pricing

14
Income stream and their taxability
Income streams
Principles for evaluation
Dividends
  • Interest, TS and royalty can flow independent of
    ownership pattern
  • TS and royalty would typically flow to an
    operating entity, which possess technical
    capabilities
  • Principal drivers are tax costs associated with
    dividend flows and gains on disposal of shares
  • Brand fee would flow to the IPR company

Capital Gains
Interest
Other royalty / brand fees /technical Services /
management services
Key elements arms length principle,
documentation, overall tax costs and foreign tax
credits
15
How will you minimize tax incidence on
Repatriation?
  • Dividend
  • Buy back / Reduction / Redemption of Preference
    Capital
  • Debt Repayment
  • Royalties, Fees for Technical Services, etc
  • Advances / Loans / Investments

16
How will you plan tax-efficient exit?
  • Use of Multi layered Structure
  • Capital Gains in Tax Free Jurisdiction
  • Sale of Foreign Assets
  • Merger / Winding Up
  • Taking advantage of Tax Incentives / Exemptions
  • LTCG Listed Companies

17
Transfer of intermediary foreign companys shares
- Vodafone Case
Mechanics
UK Co
UK
  • CCo1 sold its stake in CCo2 to Acquirer

Acquirer NCo
Issue
Netherlands
  • Revenue Authorities contend that this transfer is
    taxable in India since the controlling interest
    in Indian Asset is transferred

CCo1
Cayman Island
CCo2
Through downstream subsidiaries
Mauritius Co
Mauritius
I Co
India
18
Debatable issues after Vodafone Case
  • What is the subject matter of transaction ?
  • Is transfer of interest in subsidiary merely a
    mode of transfer of interest in the downstream
    company ?
  • Does consideration paid or payable represents the
    value of assets of intermediary or of the
    downstream company ?
  • What is the effect of declarations made by the
    parties to the transaction to their respective
    shareholders and / or to their regulatory
    authorities ?

19
  • THANK YOU
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