1. CROSS BORDER RESTRUCTURING TAX AND LEGAL ISSUES CASE STUDY 11 TH October 2013 BELA MAO COUNTRY TAX LEAD SHELL INDIA MARKETS PRIVATE LIMITED

2. General points for consideration  Under Indian law  Tax implications in India  Tax neutral merger?  Impact on tax attributes?  GAAR  Transfer pricing  Stamp duty implications?  Key regulatory implications  Companies Act, 1956  Companies Act, 2013  Competition Act, 2002  SEBI  FEMA Cross Border Restructuring - Tax and Legal Issues2  Under foreign law  Capital gains tax  Deemed dividends implications  Any restrictions under foreign law impacting the merger

3. Merger of foreign companies – Base case F Co Hold Co X Co F Co 1 India Outside India Issue of shares Merger Facts  Hold Co a foreign entity holds investment in an Indian company X Co  Hold Co merges with F Co 1, which issues shares as consideration to F Co, the ultimate holding company  Hold Co does not derive substantial value from X Co Implications  Hold Co exempt under Section 47 subject to conditions  F Co  No exemption under Section 47  Extinguishment of Hold Co shares results in transfer  However, no tax implications since Hold Co does not derive substantial value from X Co  For F Co 1, costs of shares of X Co would be same as Hold Co – Section 49 3Cross Border Restructuring - Tax and Legal Issues

4. Merger of foreign companies – Base case (contd…) F Co Hold Co X Co F Co 1 India Outside India Issue of shares Merger Implications (contd …)  Would there be GAAR considerations if Hold Co is merging into a jurisdiction with whom India has a more favourable treaty?  Would X Co share transfer be outside TP purview if exempt under Section 47? Is this on the same footing as an exempt share transfer under a treaty?  Could F Co 1 issue of shares be subject to TP regulations(AEs can be 2 NRs)? Would this be considered  A transaction having a bearing on the assets of the enterprises  Capital financing  Business restructuring? 4Cross Border Restructuring - Tax and Legal Issues

5. Merger of foreign companies – Cash Consideration F Co Hold Co X Co F Co 1 India Outside India Cash Merger Facts  Hold Co a foreign entity holds investment in an Indian company X Co  Hold Co merges with F Co 1, which issues shares as consideration to F Co, the ultimate holding company  Hold Co does not derive substantial value from X Co Implications  Hold Co does not derive substantial value from X Co  Hold Co not exempt under Section 47 – can there be tax? No consideration received by Hold Co  F Co - no tax implications since Hold Co does not derive substantial value from X Co  F Co 1 - Section 49 not applicable. Possibility of cost step up? 5Cross Border Restructuring - Tax and Legal Issues

6. Merger of foreign companies – Cash Consideration (contd…) F Co Hold Co X Co F Co 1 India Outside India Cash Merger Implications (contd …)  Would there be GAAR considerations if Hold Co is merging into a jurisdiction with whom India has a more favourable treaty? 6Cross Border Restructuring - Tax and Legal Issues

7. Merger of foreign holding company into Indian subsidiary F Co Hold Co X Co Outside India India Facts  Hold Co merges into X Co  Resultantly, F Co has immediate holding in X Co Implications  Exemption to Hold Co available under Section 47 subject to conditions  Tax / company law implications in resident country of Hold Co to be analysed  FEMA / company law implications in India to be analysed  Would X Co share transfer be outside TP purview if exempt under Section 47? Is this on the same footing as an exempt share transfer under a treaty?  Would there be GAAR implications if F Co is from a more favourable treaty country?  TP implications? ‘Business restructuring’ between AEs? 7Cross Border Restructuring - Tax and Legal Issues

8. Merger of Indian subsidiary into Hold Co F Co Hold Co X Co Outside India India Facts  X Co merges into Hold Co  F Co continues to be holding company of Hold Co Implications  Outbound mergers have been prescribed in the Companies Act, 2013  Corresponding tax implications have not been prescribed  Tax / company law implications in resident country of Hold Co to be analysed  TP implications? ‘Business restructuring’ between AEs? 8Cross Border Restructuring - Tax and Legal Issues

9. Merger of Hold Co with ultimate Hold Co F Co Hold Co X Co Outside India India Facts  Hold Co merges into F Co  Resultantly, F Co has immediate holding in X Co Implications  Tax exemption to Hold Co in India subject to conditions under Section 47  Tax / company law implications in resident countries of Hold Co and F Co to be analysed  Would X Co share transfer be outside TP purview if exempt under Section 47? Is this on the same footing as an exempt share transfer under a treaty?  GAAR implications if F Co is in a more favourable treaty country?  Other TP implications? ‘Business restructuring’ between 2 NR AEs? 9Cross Border Restructuring - Tax and Legal Issues