International Fiscal Association Regional Conference Seoul, South Korea May 12, 2016 Shefali Goradia BMR Advisors India

India : Lifting of Corporate Veil A company has separate identity from its members Indian Courts have pierced the corporate veil in following circumstances:  Where the statute itself contemplates lifting of corporate veil  Where fraud or improper conduct is sought to be prevented  Where a taxation statute or a welfare legislation is sought to be evaded  Where corporate is opposed to justice or public interest  Where the transaction is a sham

India: Judicial GAAR  Tax planning within the boundaries of law is legitimate -use of colourable device not permitted  Pre-ordained transaction (i.e. transactions structured primarily for tax evasion) to be disregarded  Tax treaties should be respected  ‘Look At’ rather than ‘Look through’ – Legal nature of entire transaction as a whole to be considered; dissecting approach not to be adopted  Holistic approach – following illustrative factors are relevant: Period of business operation Duration of holding structure Generation of taxable revenues during operation of structure Timing of exit Continuity of business on exit

India: Judicial GAAR Vodafone International Holdings vs Union of India Hutch Telecommunication International Ltd (‘HTIL’) Hutch Telecommunication International Ltd (‘HTIL’) Vodafone International BV (‘Vodafone’) Vodafone International BV (‘Vodafone’) CGP Investments Limited (‘CGP’) Hutchison Essar Limited (‘HEL’) India Intermediate holding companies Mauritius Netherlands Cayman Islands Share Purchase Agreement (‘SPA’) for shares of CGP 100% Direct and indirect shareholding in HEL - 52% 3 Global Services Private Limited Options to acquire 15% in HEL Issue Whether capital gains arising from sale of shares of CGP are taxable in India? Supreme Court held:  Indian tax authorities have no jurisdiction to tax an offshore transaction  Separate legal existence of corporate structures ordinarily to be respected  If the company is interposed as a device to evade tax, then the real transaction is to be taken into consideration  Situs of shares would be the place of incorporation of company and place of transfer but not where the underlying assets of company are situated

McDowells vs CTO  Tax planning may be legitimate – if within the framework of law  Use of dubious methods to avoid tax is impermissible Union of India vs Azaadi Bachao Andolan  An attempt by a taxpayer to take advantage of tax treaties is not illegal  Treating intermediate legal steps non-existent on hypothetical assessment of ‘real motive’ is impermissible Vodafone International Holdings BV vs Union of India  Special Purpose Vehicles (SPVs) and Holding Companies have a place in legal structures in India  Burden on Revenue authorities to allege and establish abuse / tax avoidance in the creation and / or use of structure by Holding companies  Revenue can invoke 'substance over form principle' or ‘piercing corporate veil' test only if transaction is a sham or entered into only for tax avoidance India: Judicial GAAR Key Takeaways

India: GAAR  Statutory GAAR to become effective from April 1, 2017  Applicability Impermissible avoidance arrangement Main purpose of arrangement to obtain tax benefit Lacks commercial substance/ results in misuse of Act Deemed to lack commercial substance if place of residence has no substantial commercial benefit  Relevant factors (not sufficient) - period of arrangement (including operations), payment of taxes, exit route provided by the arrangement  If GAAR invoked Tax Treaty override Disregarding / recharacterisation of transaction place of residence/ situs of asset or transaction may be restated  Investments made before April 1, 2017 grandfathered Clarity required:  Relevance of Tax Residency Certificate  Treaties with LOB clause – whether GAAR will apply  GAAR v. SAAR