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2. Panel Discussion – Tax issues arising from transfer of shares, business restructuring (including issues related to indirect transfer) and applicability of MAT provisions to foreign companies July 2015

3. Discussion purpose only Issue 1 – India Mauritius tax treaty M Co I Co Mauritius India F Co ► Availability of benefit of India-Mauritius tax treaty for capital gains on transfer of shares of an Indian company (‘I Co’) by a Mauritius company (‘M Co’) to Foreign company (‘F Co’) ► Impact of decision in case of Aditya Birla Nuvo ► Impact on transaction dynamics – ► Withholding taxes ► Nil withholding certificate from tax authorities ► Escrow ► Indemnity ► Tax insurance Transfer of shares of I Co to F Co

4. Discussion purpose only Issue 2 – Availability of beneficial rate of 10% to foreign companies transferring shares of an Indian Private Limited company F Co 1 I Co Pvt Ltd Transfer of shares of I Co Pvt Ltd to F Co 2 Foreign country India F Co 2 ► Availability of beneficial rate of 10% to foreign companies who transfer shares of an Indian private limited company (I Co Pvt Ltd) to F Co 2* * Refer to Annexure 1

5. Discussion purpose only Issue 3 – Transfer of shares of an Indian listed company by non-resident off the stock exchange ► Transfer of shares of an Indian listed company (‘India List Co’) by non-resident off the stock exchange is taxable at 10% ► However, Part II of the First Schedule to Finance Act, 2015 provides that buyer (being a non-resident) should withhold taxes @20% Non resident India List Co Transfer of shares of Indian List Co by Non resident to Buyer off the stock exchange Foreign country India Buyer Refer to Annexure 2

6. Discussion purpose only Issue 4 – Foreign mergers ► Issue of shares to an Indian company (‘I Co’) pursuant to merger of two foreign companies (merging F Co1 with F Co 2) where such Indian company has made investment – not tax neutral I Co F Co 1 F Co 1 merging with F Co 2 India Foreign country F Co 2 F Co 2 issues its shares as consideration to I Co

7. Discussion purpose only Issue 5 – Indirect transfer ► Merger of two foreign companies resulting in transfer of shares of Indian company directly or indirectly- ► Exemption provided to the transferor foreign company ► No exemption available to the shareholders of the transferor foreign company F Co 2 I Co Indirect transfer of shares of I Co through cancellation of shares of F Co 2 held by F Co 1 Foreign country India F Co 1 F Co 2 to merge into F Co 1 F Co 1F Co 2 I Co Shareholder 1 2 Merger Issuance of shares x x Foreign country India 1 2 ► No exemption for merger of foreign company F Co 2 (owning shares of an Indian company) into its own parent F Co 1 ► Such merger results in cancellation of shares which F Co 1 holds in F Co 2, triggering indirect transfer provisions

8. Discussion purpose only Issue 6 – MAT applicability to foreign company having no physical presence/PE in India ► Foreign company having no physical presence/permanent establishment (‘PE’) in India - Can MAT apply? ► Recent amendment whether clarificatory having retrospective effect F CO India Foreign country F Co does not have any physical presence/PE in India * Refer to Annexure 3

9. Discussion purpose only Questions?

10. Discussion purpose only Annexure 1 - Availability of beneficial rate of 10% to foreign companies transferring shares of an Indian Private Limited company As per sub-clause (iii), clause (c) of subsection (1) of Section 112 of the Income Tax Act, 1961:- ► S. 112(1) “Where the total income of an assessee includes any income, arising from the transfer of a long-term capital asset, which is chargeable under the head "Capital gains", the tax payable by the assessee on the total income shall be the aggregate of…, ► ……………………………… ► (c) in the case of a non-resident (not being a company) or a foreign company…,— ► (iii) …the amount of income-tax on long-term capital gains arising from the transfer of a capital asset, being unlisted securities, calculated at the rate of ten per cent on the capital gains in respect of such asset as computed without giving effect to the first and second proviso to section 48…” Explanation.—For the purposes of this sub-section,— (a) the expression "securities" shall have the meaning assigned to it in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (32 of 1956); (aa) "listed securities" means the securities which are listed on any recognised stock exchange in India; (ab) "unlisted securities" means securities other than listed securities. As per SCRA, (h) “securities” include— (i) shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate;….

11. Discussion purpose only Annexure 2 - Transfer of shares of an Indian listed company by non-resident off the stock exchange As per sub-clause (ii), clause (c) of subsection (1) of Section 112 of the Income Tax Act, 1961:- ► S. 112(1) “Where the total income of an assessee includes any income, arising from the transfer of a long-term capital asset, which is chargeable under the head "Capital gains", the tax payable by the assessee on the total income shall be the aggregate of…, ► ……………………………… ► (c) in the case of a non-resident (not being a company) or a foreign company…,— ► (ii) …the amount of income-tax calculated on long-term capital gains [except where such gain arises from transfer of capital asset referred to in sub-clause (iii)] at the rate of twenty per cent; and…” ……………………………. Provided that where the tax payable in respect of any income arising from the transfer of a long-term capital asset, [being listed securities (other than a unit)] or zero coupon bond, exceeds ten per cent of the amount of capital gains before giving effect to the provisions of the second proviso to section 48, then, such excess shall be ignored for the purpose of computing the tax payable by the assessee ………………… As per Part II of The First Schedule of the Finance Act 2015:- ………………………………… ► “on income by way of other long-term capital gains [not being long-term capital gains referred to in clauses (33), (36) and (38) of section 10]” - the rate of withholding is 20%.

12. Discussion purpose only Annexure 3 - MAT applicability to foreign company having no physical presence/PE in India As per Section 115JB of the Income Tax Act, 1961:- ► 115JB (1) “Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee, being a company, the income-tax, payable on the total income as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 2012, is less than eighteen and one-half per cent of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of income-tax at the rate of eighteen and one-half per cent. ► 115JB (2) Every assessee,— ► (a) being a company, other than a company referred to in clause (b), shall, for the purposes of this section, prepare its profit and loss account for the relevant previous year in accordance with the provisions of Part II of Schedule VI to the Companies Act, 1956 (1 of 1956)…” As per clause (ii) of sub-section 17 of Section 2 of the Income Tax Act, 1961:- ► 2 “In this Act, unless the context otherwise requires…,— ► …………………….. ► (17) “…company" means…— ► (ii) …any body corporate incorporated by or under the laws of a country outside India…”

13. Discussion purpose only Thank You