1. Investissements en Inde : Quelles opportunités et contraintes ?
Mercredi 25 juin 2008
Investissements en Inde :
Quelles opportunités et contraintes ?
Wednesday, June 25th, 2008
Investing in India:
Opportunities and constraints?

2. Frédéric Donnedieu de Vabres
Investissements en Inde : Quelles opportunités et contraintes ?
Investing in India: Opportunities and constraints?
Frédéric Donnedieu de Vabres
TAXAND
Chairman

3. Who is TAXAND? The first global network of independent tax advisors.
Investissements en Inde : Quelles opportunités et contraintes ?
Investing in India: Opportunities and constraints?
Who is TAXAND?
The first global network of independent tax advisors.
Our mission is to contribute to our clients' success by anticipating and advising on the tax implications related to their most strategic business decisions. Globalization and complexity demand sophisticated and customized tax advice that meets the highest standards delivered by experienced professionals who put the interests of clients first.
Taxand was formed in 2005 by a respected group of premier independent tax firms from countries around the world who share a common vision of delivering seamless and responsive service to local and international clients.
The preeminent network of Taxand has grown exponentially, and now has 300 tax partners in more than 40 countries and more than 2000 professionals serving the global marketplace.

4. TAXAND members include:
Investissements en Inde : Quelles opportunités et contraintes ?
Investing in India: Opportunities and constraints?
TAXAND members include:
Argentina
Australia
Belgium
Brazil
Canada
Chile
China
Colombia
Cyprus
Denmark
Finland
France
Germany
Greece
India
Indonesia
Italy
Japan
Korea
Luxembourg
Malaysia
Malta
Mauritius
Mexico
Netherlands
Norway
Pakistan
Peru
Philippines
Poland
Portugal
Puerto Rico
Romania
Russia
Singapore
Spain
Sweden
Switzerland
Turkey UK
Ukraine
USA
Venezuela

5. First Secretary, Economic & Commercial
Investissements en Inde : Quelles opportunités et contraintes ?
Investing in India: Opportunities and constraints?
Ms. Manju
EMBASSY OF INDIA, Paris
First Secretary, Economic & Commercial

6. EMBASSY OF INDIA IN FRANCE
« The opening up of the Indian economy
&
opportunities for French companies »
at Le Meurice on
MANJU
First Secretary (Economic & Commercial)
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9. GENERAL FACTS AREA 3 287 590 km² POPULATION 1 103 in 2007
(ranks 7th in the world)
POPULATION
(millions)
in 2007
(2nd rank)
(demographic growth: 1.4%)
SHARE IN THE WORLD POPULATION
(2006)
17.06 %
DENSITY OF THE POPULATION
324 inhab./km²
(2001 census)
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10. GENERAL FACTS GDP GROWTH RATE 9.6% INFLATION Between 4.5-5%
( )
9.6%
(up from 3.8% in & expected to grow at 9.5%)
INFLATION
(average in )
Between 4.5-5%
PER CAPITA INCOME
(at current prices by end )
USD 797
(estimation of USD by )
GDP/INHAB.
3rd in the world in terms of PPP
(OECD Report 2007)
FOREIGN EXCHANGE RESERVES
(2007)
USD 261 billion
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GENERAL FACTS
CONTRIBUTION
TO GDP
( )
POPULATION ENGAGED
(2007)
AGRICULTURE
18.5 %
58%
INDUSTRY
26.4 %
17%
SERVICES
55.1 %
25%
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12. Visual Identity Guidelines for PPT Presentation
INDIA-POLITY
- Federal Union of 28 States & 7 Union Territories neighbouring Pakistan, China, Nepal, Bhutan, Bangladesh, Myanmar & Sri Lanka. Hindi and English are the official languages; 18 main languages recognized by the Constitution;
- Biggest parliamentary democracy in the world: sovereign, socialist & secular republic;
- The President is the Head of the State (5 years) & acts on the advice of the Cabinet or the Council of Ministers led by the Prime Minister;
- Independant judicial system;
Source :
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13. INDIA’S ECONOMIC REFORMS
Reform process initiated in 1991 by Dr. Manmohan Singh (the then Minister of Finance & current Prime Minister since 2004).
The main lines of the liberalization
a larger role for the private sector (the list of 18 industries reserved entirely for the public sector was drastically reduced to 3 : defense aircrafts & warships, atomic energy & railway transport); energy, air transport, telecoms & petroleum industry opened up to private investments;
FDI can reach & exceed 51% of the capital;
market forces allowed free play;
development of mergers & purchases;
drastic reductions of customs duties on import of equipment & intermediary goods (excessively high tariffs : the top rate was 400%, as much as 60% of tariff lines were subject to rates ranging from % & only 4% of the tariff rates were below 60%);
reduction of the corporate tax;
Source :
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14. POST 1991: A BUOYANT ECONOMY
Peak customs tariff has come down to 45% with the average tariff rate declining to less than 25%;
The economy has grown from around 6% between to 9.6% in with full macroeconomic stability;
Poverty reduced by 6% every year since 1991
(Per capita income: USD 797 at current prices in );
The large & emerging domestic market ( million consumers) is attracting more & more Fortune 500 companies;
Source :
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FDI IN INDIA
FDI is permitted in most sectors through the ‘Automatic Route’ except in:
- atomic energy
- gambling & betting
- tobacco
&
- retail trading (except for single-branded product)
Global incoming FDI in India:
FY : USD 17 billion (USD 2.8 billion in )
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17. FDI POLICY AND PROCEDURE
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18. FDI POLICY AND PROCEDURE (contd.)
FDI under automatic route does not require prior approval either by the Government or Reserve Bank of India (RBI).
The investors are only required to notify the regional office of RBI within 30 days of receipt of inward remittances and file the required documents within 30 days of issue of shares to foreign investors.
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19. FDI POLICY AND PROCEDURE (contd.)
FDI in activities not covered under automatic route (as indicated earlier) require prior Government approval. Applications for such proposals, except Export Oriented Units (EOU) and FDI in retail trading (single branded product), should be submitted to the Foreign Investment Promotion Board, Ministry of Finance. Applications for EOU and for FDI in retail trading (single branded product) should be submitted to the Secretariat for Industrial Assistance, Department of Industrial Policy & Promotion, Ministry of Commerce & Industry.
Applications can be made in Form FC-IL, which can be downloaded from Plain paper applications carrying all relevant details are also accepted. Applications can also be submitted with Indian Missions abroad who forward them to Department of Economic Affairs for further processing.
No fee is payable.
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20. Visual Identity Guidelines for PPT Presentation
ADVANTAGE INDIA
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21. Visual Identity Guidelines for PPT Presentation

22. Visual Identity Guidelines for PPT Presentation
ADVANTAGE INDIA
Biggest parliamentary democracy in the world;
Federal Union of 28 States & 7 Union Territories (potential market at the National or a local State level for a foreign company);
One of the largest economies in the world with sustainable GDP & FDI growth;
Government’s proven commitment to the deregulation process;
Sophisticated financial sector;
Intellectual Property (IP) rights are TRIPS (Trade-related aspects of IP rights) compliant;
Evolved state of Indian law & judiciary that secures contracts, copyrignts & patents;
FDI procedures simplified;
Large workforce that is English-speaking, highly skilled (IIT, IIM & other institutions) & competitive;
Low corporate tax rate : 33.67% for an Indian company & 41.82% for a foreign one (2007);
Liberal policy on technology collaboration;
50% of the population is under 25 years (India will remain a young nation with the median age going up from 21 in 2000 to 26 in 2025);
Source :
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23. SCOPE AREAS FOR FRENCH COMPANIES
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24. SCOPE AREAS FOR FRENCH COMPANIES
AUTO COMPONENTS: During , the Indian automobile industry produced over 2.06 million 4-wheelers & over 9 million
2 & 3-wheelers .
Many international auto majors are manufacturing & outsourcing their components from India (GM, Toyota, Hyundai, Volkswagen, Ford, Mercedes, etc.). Many SME are involved in the manufacture of auto parts & components.
Two French companies in India: Filtrauto (auto equipment) & Ateq (auto control)
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25. SCOPE AREAS FOR FRENCH COMPANIES
BIOTECHNOLOGY: From a small beginning 25 years ago, the sector has emerged as a dominant one providing employment to hundreds of thousands of skilled & qualified people.
Number of biotech firms: 325 across the country mainly SME are concentrated in Mumbai/Pune belt, Hyderabad, Bangalore, New Delhi & Chennai and generating revenues of USD 2 billion (estimated to grow to USD 5 billion by 2010).
Annual growth: 35-40% for the last 3 years.
An Ernst and Young survey ranks India 3rd among 5 emerging biotech leaders in the Asia-Pacifi region.
India: the world’s largest vaccine producer.
Opportunity for new investments is estimated to be in the USD billion range.
Ex: Avasthagen, a small R&D company in biopharmaceuticals & innovation; today, it is valued at € 200 million with investors like Danone, Nestlé, Cipla, Limagrain, BioMérieux, etc.
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26. SCOPE AREAS FOR FRENCH COMPANIES
PHARMACEUTICALS: India ranks 4th in the world in terms of production by volume, accounting for 8% of the world production.
India produces 20-24% of the world’s generic drugs (in terms of volume).
The industry is worth USD 6 billion, growing at over 13% per year.
McKinsey study (2007): «The industry has the potential to reach USD 25 billion by 2010 with its current growth rate».
Indian companies supply almost all the country’s demand for formulations & nearly 70% of demand for bulk drugs, many in the SME sector.
The potential is large both in the domestic markets and for exports.
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27. SCOPE AREAS FOR FRENCH COMPANIES
AGROFOOD: one of the largest food producers in the world; India is looking for investments in infrastructure, packaging & marketing in the food processing sector (USD 15 billion).
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28. SCOPE AREAS FOR FRENCH COMPANIES
SCIENCE & TECHNOLOGY: With the 3rd largest available scientific manpower in the world, the Indian science & technology industry has been growing well above world average.
Space Technology: India is one of the few countries with expertise to conceptualise, design & manufacture satellites & the capability to launch them into space. Also, ISRO is the world’s 3rd non-US supplier of 1-metre imageries & holds nearly 25% of the global free-play imageries market. More than 500 companies (50% of SMEs) are associated with our space programme. The programme itself transferred 279 technologies to industry for commercialisation.
Renewable Energy: India has been tapping energy from renewable sources to meet its growing demands. India: the 3rd largest producer of solar photovoltaic cells in the world; the world’s 4th largest wind power user; Suzlon Energy is the 6th largest in the world & the largest in Asia; India has the world’s largest number of biomass gasifier systems & has the 9th largest solar thermal power generation in terms of million units per square meter. A large number of SMEs involved in this sector (French company Velcan Energy in the Biomass power plant sector & small hydropower plants sector).
Civil Nuclear Energy: Opportunities in many technical fields : laser & accoustic microscopes, spectrometers, etc. for use in this field.
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29. INDO-FRENCH RELATIONS
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30. INDO-FRENCH RELATIONS
India-France bilateral relations have been marked by political understanding & growing interaction at the highest levels.
In recent years, economic & commercial linkages have become more important.
Cultural cooperation has intensified & deepend: «Lille 3000» in was a 4-month long cultural festival showcasing India’s cultural diversity. From April to July 2007, an exhibition showcasing ancient artefacts & culture of India was held at the Grand Palais (Paris).
Tourism to & from India has increased substantially. The Embassy of India issued visas in 2007 (the highest number of visas as compared to any other Embassy in Paris). Out of these, Business visas were & Employment visas 487.
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31. INDO-FRENCH INVESTMENTS
French investments in India (August 1991-March 2007)
France is the 8th largest investor in India representing 1.98% of global investments in India.
- Actual inflows: USD 900 million (well below the potential that exists)
Sectors: fuels, chemicals, cement, services sector, electrical equipment, software, etc.
- 915 financial & technical collaborations approved between Aug., 1991-March 2007
Indian investments in France
During the period , a total of 20 Greenfield investments were made by Indian companies which created/preserved jobs in France. In 2007, Indian companies invested more than € 0.5 billion in France in various sectors including plastics, lighting, auto parts, pharmaceuticals & IT.
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32. Visual Identity Guidelines for PPT Presentation
INDO-FRENCH TRADE
According to the French trade statistics, the India-France bilateral trade went up by 200% between , with Indian exports to France growing by about 165% over the same period.
Bilateral trade comprises 0.4% of France’s global trade & 1.5% of India’s global trade.
Bilateral commercial trade between May., 07-April., 08: € 6.29 billion
French imports for the same period: € 3.08 billion
French exports for the same period: € 3.21 billion
During President Nicolas Sarkozy’s meeting with Prime Minister Manmohan Singh in January 2008, both leaders decided to increase bilateral trade to € 12 billion by 2012.
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33. INDO-FRENCH TRADE (May., 07-April., 08)
Top 5 items of exports from India to France :
Refined petroleum products
Underwear & other wearing apparel
Apparel & accessories
Textile articles
Basic organic chemicals
Top 5 items of exports from France to India :
Aircraft & spacecraft
Instruments & appliances for measuring, checking & testing
Steel products
Electrical equipment & apparatus
Broadcasting apparatus
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34. FRENCH COMPANIES IN INDIA
Currently, there are around 500 French companies based in India mainly as subsidiaries but also as joint ventures & liaison offices. Many are expanding their operations in India.
These enterprises are mainly situated in New Delhi & its region (31%), Mumbai & Pune (26%), Bangalore (15%) & Chennai (10%).
They globally recruit more than persons.
The major French companies based in India: Dassault Aviation, EADS, Saint Microelectronics, Thales, Technip, Systra, Alstom, Areva, Saint-Gobain, Cap Gemini, Onyx, Axa, Lafarge, Aventis, Schneider Electric, Pernod Ricard, Alcatel-Lucent, Louis Vuitton, Chanel, L’Oréal, GDF, Total, Danone, Air Liquide, Essilor International, etc.
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35. CONTACT THANK YOU FOR YOUR ATTENTION 15, rue Alfred Dehodencq
Paris
Tel. : , 42 or 45
Fax : or
Web Site :
THANK YOU FOR YOUR ATTENTION
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36. AREVA T&D Karim Vissandjee CFO
Investissements en Inde : Quelles opportunités et contraintes ?
Investing in India: Opportunities and constraints?
Karim Vissandjee
AREVA T&D
CFO

37. ALOE PRIVATE EQUITY Ludovic Both CFO
Investissements en Inde : Quelles opportunités et contraintes ?
Investing in India: Opportunities and constraints?
Ludovic Both
ALOE PRIVATE EQUITY
CFO

38. BMR & Associates Mukesh Butani Founding partner
Investissements en Inde : Quelles opportunités et contraintes ?
Investing in India: Opportunities and constraints?
Mukesh Butani
BMR & Associates
Founding partner

39. T a x a n d R e g u l a t o r y

40. INVESTING IN INDIA
June 25, 2008
Mukesh Butani
BMR Advisors

41. CONCEPT OF ‘PE’
‘PE’
Physical (Office or place of management etc)
PE not formed
PE not formed
Agency
Preparatory and Auxiliary Activity
Purchase of goods/merchandise
Storage or display of goods
Acting as communication channel
Construction site for short duration
Preparatory and auxiliary activity of a dependent agent
Independent Agent
PE is formed if
PE is formed if
Activity is income generating i.e. concluding contracts, securing contracts
Services to associated group enterprises
Dependent Agent
Concluding Contracts
Negotiating price
- Repeat sales
Securing orders
-After sales services

42. TAXATION OF FOREIGN ENTERPRISE
Under the domestic laws
Under the DTAA
Taxable income:
received in India
accruing or arising in India or from business connection in India
Fee for technical services (FTS) /royalty for business in India
Taxable in respect of following income:
business profits to the extent attributable to a PE in India
Fee for technical services/ royalty paid by an Indian company
DTAA overrides domestic law
Tax rates for various income streams are mentioned in subsequent slide

43. TAX RATES AT A GLANCE Particulars Tax Rate (percent)
Corporate income tax
30 (domestic company)
40 (foreign company)
Long term capital gains on shares
Nil (if Securities Transaction Tax (“STT”) has been paid)
15 (If STT has not been paid)
Short term capital gains on shares
15 (If STT has been paid)
30 (If STT has not been paid)
Dividends withholding tax
Nil
Interest
10 /20
Royalties 10
Fees for technical services
Dividend distribution tax (“DDT”) 15
Plus surcharge 10 % - domestic company, 2.5% - foreign company and education cess of 3%, if rates as per domestic law are applied

44. HOT TOPICS WITH INDIAN REVENUE
Non resident to non resident transactions – big deals under the tax scanner
Taxability of offshore services
Drawings & designs embedded in supplies
Characterisation of income – Royalty vs Business income
Taxability of packaged software
Business Connection and PE
Attribution of profits to PE
Capital versus Revenue expenditure
Transfer Pricing

45. TRANSFER PRICING LEGISLATION - OVERVIEW
Economic analysis – Computation of arm’s length price
Factors affecting transfer price
Functional analysis- Detailed description of transaction
Audit / litigation procedures
Double taxation avoidance clauses
Methods to compute arm’s length price
TP Regulations - Features
Dispute resolution mechanisms
Arm’s length principle
Overview of the Transfer Pricing Legislation

46. RECENT TRANSFER PRICING DEVELOPMENTS
Aggressive attitude of Revenue
Focus on comparability analysis (functions, risk and asset)
Reluctance to accept ‘low margin’ and ‘loss making’ comparables
Banks, Telecom, Consumer durables, Pharmaceutical, Software and IT enabled services (ITeS) closely scrutinized
Global Regional cost allocation arrangements accepted based on sound allocation keys and strict benefits test
Increased reliance on OECD guidelines
Specialist revenue officers for Transfer Pricing cases
Focus moving from compliance to planning
Three rounds of audits completed; cumulative adjustments of INR 24 billion* (FY ) escalating to INR 35 billion* (FY )
* Approximate figures

47. FUTURISTIC ISSUES Need for CFC legislations?
Introduction of a ‘New Income Tax Code’
Roll out of GST by 2010
Stable rate regime for indirect taxes
Service tax / VAT to be revenue engine

48. C h a l l e n g e U s

49. Frédéric Donnedieu de Vabres
Investissements en Inde : Quelles opportunités et contraintes ?
Investing in India: Opportunities and constraints?
Frédéric Donnedieu de Vabres
TAXAND
Chairman

50. Tax regime applicable to the main flows between India and France (1/2)
Capital gain taxation :
right to tax granted to India by the Treaty if stake higher than 10%
taxation rate between 0 and 30%
French CFC rule :
Theoretically applicable in case of Indian tax holiday
Exception if industrial or commercial activity carried out in India
FrenchCo
Indian
Target
WHT : 0
DDT : 16,995%
Interest WHT : 10%
Royalties WHT : 10%
dividends
>50%
Two major issues to be addressed:
Capital gain taxation upon the disposal of Indian shares
Indian Dividend Distribution Tax (DDT)
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51. Tax regime applicable to the main flows between India and France (2/2)
Indian Capital gain taxation can be avoided thanks to an intermediate holding located in:
Mauritius
Cyprus
Singapore
Applicable Treaties grant the exclusive right to tax to the Residence State
Treaty shopping ?
Indian DDT may be avoided through a buy-back of shares
FrenchCo
Dividends
WHT Mauritius : 0 Cyprus : 0 Singapore : 0
100%
Intermediate holding Mauritius Cyprus Singapore
Buy-back of shares
>50%
WHT : 0
Indian
Target
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DDT : 0

52. Karim Vissandjee, CFO, AREVA T&D
Investissements en Inde : Quelles opportunités et contraintes ?
Investing in India: Opportunities and constraints?
Ms. Manju, First Secretary, Economic & Commercial, Embassy of India, Paris
Karim Vissandjee, CFO, AREVA T&D
Ludovic Both, CFO, ALOE PRIVATE EQUITY
Mukesh Butani, Founding partner, BMR & Associates
Frédéric Donnedieu de Vabres, Chairman, TAXAND