1. PwC Tax Structuring of Real Estate Investments in India 1 December 2009

2. Contents Background Salient Features: Luxembourg – India treaty Before DTT: RE investments in India using multiple treaty platforms Post DTT: RE investments in India using Luxembourg treaty platform

3. PricewaterhouseCoopers 1 December 2009 Slide 3 Tax Structuring of Real Estate Investments in India India – Luxembourg relations Traditionally, India had not been a very attractive investment market Post liberalisation of India’s economy, Luxembourg based funds have significantly increased their investments in the Indian real estate market Jurisdictions such as Mauritius, Cyprus etc, typically used as investment route because of their favourable double tax treaties with India Luxembourg bourse, has been a popular destination among India Inc. for raising funds internationally Luxembourg – India double tax treaty (DTT) is a positive step forward DTT provides for simplified and reliable investment opportunities in India Luxembourg – India DTT, applicable as from 1 January 2010 in Luxembourg and 1 April 2010 in India Background

4. PricewaterhouseCoopers 1 December 2009 Slide 4 Tax Structuring of Real Estate Investments in India India - Luxembourg Double Tax Treaty (DTT) Dividend distributed (art 10)  WHT of 10% Interest (art 11)  Interest taxable in the state of residency of the beneficiary  WHT of 10%  Exempt if the beneficiary is government, political divisions and certain banks and institutions Royalties (art 12)  Royalties taxable in the state of residency of the beneficiary  10% WHT according to treaty Capital gains (art 13)  Capital gains from the disposal of shares of a company can be taxed in the state of residency of the company - exemption in the other State Salient Features of Luxembourg

5. PricewaterhouseCoopers 1 December 2009 Slide 5 Tax Structuring of Real Estate Investments in India India - Luxembourg Double Tax Treaty (DTT) Wealth (art 23)  Taxed in the State where the wealth is located Elimination of double taxation (art 24)  In the case of India - Credit against the India tax of the amount of tax paid in Luxembourg is allowable  In the case of Luxembourg - For the income in accordance with article 10, 11, 12 and 17 (dividends, interests, royalties) - Credit against the Luxembourg tax of the amount of tax paid in India (but note that participation exemption will apply to many dividends). For any other income, if taxed in India, tax exemption in Luxembourg Limitation of Benefits (art 29 & 30)  Legal entities that do not have “bona fide business activities” are excluded  H29 companies are excluded from this DTT Salient Features of Luxembourg

6. PricewaterhouseCoopers 1 December 2009 Slide 6 Tax Structuring of Real Estate Investments in India Objectives Tax optimization for financing and repatriation of rental income and exit gains Tax benefits Net Rental income taxed at the level of IndiaSPV, repatriated (almost all of it) as interest expense on convertible debentures to Cyprus Interest payments on CD to Cyprus taxed at reduced WHT rate of 10% in India Capital gain on disposal of IndiaSPV is not taxable in India, based on India – Mauritius DTT In practice, no WHT on dividends paid from India to Mauritius (treaty rate is 5%). Dividends received are taxable in Mauritius (FTC available) No WHT on dividends distributed by MauritiusCo to LuxCo Minimal corporate tax and no WHT on income received and repatriated by LuxCo Real Estate Investments in India via multiple treaty platforms Before Luxembourg – India DTT DDT @16.995% LuxCo CyprusCo IndiaSPV Dividends Fund Hybrid Instrument 0% WHT MauritiusCo Interest 10% WHT Loan (CD terms) Convertible Debentures (CD) Equity

7. PricewaterhouseCoopers 1 December 2009 Slide 7 Tax Structuring of Real Estate Investments in India Real Estate Investments in India via multiple treaty platforms Before Luxembourg – India DTT Considerations Luxembourg holding platform relevant from investor perspective than investment perspective Multiple jurisdictions to manage, leading to increased complexity. More attention required to handle substance and beneficial ownership issues Use of convertible debentures to provide debt financing to Indian SPV on tax efficient terms Funds raised through convertible debentures to be used for specified purposes only (India foreign exchange control rules) Beneficial ownership test to be passed by CyprusCo to benefit from reduced WHT rate of 10% in India. India authorities will tax at a higher rate in absence of sufficient proof. Indian tax authorities (CBDT) has set up in early 2009, a special task force to suggest ways to prevent abuse of its double tax treaties. India is attempting to renegotiate and amend its tax treaties with Mauritius and Cyprus (capital gains tax clause, LoB clause) Currently, there are no major investment flows into India from Cyprus due to lack of advanced regulatory and financial controls and political climate DDT @16.995% LuxCo CyprusCo IndiaSPV Dividends Fund Hybrid Instrument 0% WHT MauritiusCo Interest 10% WHT Loan (CD terms) Convertible Debentures (CDs) Equity

8. PricewaterhouseCoopers 1 December 2009 Slide 8 Tax Structuring of Real Estate Investments in India After Luxembourg – India DTT Real Estate Investments in India from Luxembourg Hybrid Instrument LuxCo IndiaSPV Fund/investors DDT@16.995% Interest 10% WHT (CD terms) Convertible Debentures (CD) Objectives Tax optimization for financing and repatriation of rental income and exit gains Tax benefits Net Rental income taxed at the level of IndiaSPV, repatriated (almost all of it) as interest expense on convertible debentures to Luxembourg Interest payments on CD to Luxembourg taxed at reduced WHT rate of 10% in India DDT 16.995% on dividends distributed by IndiaSPV At the time of exit, CD converted to ordinary shares, subject to reduced capital gains tax rate of 10% in India (not taxable in Luxembourg) Further, no WHT on distributions by LuxCo to Fund/investors. Luxembourg participation exemption available

9. PricewaterhouseCoopers 1 December 2009 Slide 9 Tax Structuring of Real Estate Investments in India After Luxembourg – India DTT Real Estate Investments in India from Luxembourg LuxCo IndiaSPV Fund/investors Hybrid Instrument DDT@16.995% Interest 10% WHT (CD terms) Convertible Debentures (CD) Considerations Simplified and easy to implement holding structure. Generally much easier to have sufficient substance in Luxembourg (less difficult to challenge) to prove beneficial ownership of IndiaSPV by LuxCo. However no strict guidelines at this stage Funds raised through convertible debentures to be deployed for specified purposes only LuxCo should be able to benefit from reduced WHT rate of 10% on interest payments from India Dividends distributed by IndiaCo taxed (DDT) in India but exempt in Luxembourg based on Luxembourg participation exemption regime. India DDT not creditable in Luxembourg Tax treaty between Luxembourg and India is new and “safe”.

10. PricewaterhouseCoopers 1 December 2009 Slide 10 Tax Structuring of Real Estate Investments in India Any Questions?

11. © 2009 PricewaterhouseCoopers. All rights reserved. “PricewaterhouseCoopers” refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity. *connectedthinking is a trademark of PricewaterhouseCoopers LLP (US). PwC David Roach - Tax Leader, Real +352 49 48 48 5707 david.roach@lu.pwc.com www.pwc.com/lu