Lost in Layers: lower threshold for subsidiaries under ODI norms raises concern

”There are also certain concerns that this two-layer structure will set a precedent for other laws.” According to one interpretation, the Singapore entity is the first layer and Indian company will be the second layer. Worldwide there is not a comprehensively defined standard for the classification of a tax haven country. However, there are several regulatory discuss the advantages and disadvantages of incorporation bodies that monitor tax haven countries, including the Organization of Economic Cooperation and Development and the U.S. A tax haven is a jurisdiction with very low “effective” rates of taxation for foreign investors. Overseas investments, in excess of the limits, can be made in strategic sectors like energy, natural resources etc. under approval route.

  • Then transfer all its assets to that country, invest back from that country into India, make a profit but not pay a penny of tax.
  • It has defined inter-state migrant workers as the worker who has come on their own from one state and obtained employment in another state, earning up to Rs. 18,000 a month.
  • A bulk of India’s FDI inflows and outflows are routed through these tax havens.

According to the RBI, ’other capital’ inflows include leads and lags in exports, SDR allocation, funds held abroad, advances received pending issue of shares under FDI and other capital not included elsewhere. A bulk of India’s FDI inflows and outflows are routed through these tax havens. The protest was apparently because regulators and enforcement agencies like the RBI, SEBI and ED are investigating many round-tripping and other violations of ODI regulations.

What is Round tripping of FDI?

FATF now periodically identifies jurisdictions with none or minimal measures to combat money laundering and terrorist financing. However, the regulator fears that funds structured as PCCs, which are legal entities in many jurisdictions, might be looking at a re-entry into Indian markets through routes like Foreign Venture Capital Funds and other avenues for the purpose of round tripping of funds. In 2010, SEBI had barred protected cell companies to invest in Indian markets through the FII route after it came across instances where certain Indians had used these entities to route their money back into markets as FII funds. Market regulator Securities and Exchange Board of India is probing at least three large European banks for dealings with Indian companies and individuals in alleged round tripping of funds by using certain multi-layered transactions in violation of the norms. P-notes are the offshore derivative instruments which are issued against the Indian securities by the foreign portfolio investors registered with SEBI.

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round tripping

Illustratively, Ladha pointed out, an Indian entity ‘A’ can invest in a foreign subsidiary ‘X’ which can in turn invest in a subsidiary in India, without RBI approval. Of course, this needs to meet the conditions of bona fide business, he added. An Indian entity investing in a foreign company which invests or already has investments in India is typically referred to as round-tripping. For any such investment, so far, prior approval was required from the Reserve Bank of India. Suspicious or doubtful transactions are shared with agencies like the Enforcement Directorate, the Central Bureau of Investigation and the Tax Authority for the purpose of launching probes to check possible instances of money laundering, tax evasion and terror financing. It collects and analyzes information about financial transactions in order to combat domestic and international money laundering, terrorist financing, and other financial crimes.

Term & Policy

Thus, it is an easier way of investing in the securities of other countries without any registration with the regulator of that country. Many foreign companies, offshore funds and non-resident outfits have had to take a call over the past fortnight on a matter that most overseas entities steer clear of for as long as they can — filing returns with the Indian Income Tax (I-T) Department. ”The requirement that the investment should not result in more than two layers has given rise to some uncertainty for certain kinds of structures and, hopefully, it will be clarified in the coming days and bankers will take a common view,” said Rajesh Gandhi, partner at Deloitte India. Singhal said that as a thumb rule, this was being limited to swap by way of only fresh issue of equity shares of the acquiring Indian company. So, an Indian company, which desired to acquire shares of an overseas entity without paying cash consideration, could only do so by issuing its own equity shares, and was not allowed to instead transfer shares of another company already held by it, he explained. Previously, there was ambiguity on the extent and manner in which an Indian business could acquire shares in an overseas entity by paying for such investment by way of swap of securities.

These agencies are also putting a question mark on all cross-border acquisitions by domestic companies if the foreign entity has an Indian subsidiary. Once control is established, the entity over which the foreign entity exercises the same will be regarded as a subsidiary of the foreign entity or an SDS. Most importantly, the structure of the subsidiary/ SDS has to comply with the structural requirements of a foreign entity i.e. SDS should be entities with limited liability, formed or registered or incorporated outside India or in an IFSC, and in case of unincorporated entities, with core activities in the strategic sector. The OI norms prescribe reporting requirements applicable to the Indian entity acquiring control through the foreign entity.

Hospitality chain Oyo’s initial public offering is likely to be delayed by three months as India’s capital markets regulator has asked the Ritesh Agarwal-promoted startup to update its draft IPO papers. With 189 member countries, the World Bank Group is a unique global partnership which consists of five development institutions. The Deputy Chairman has violated all the canons of law, procedure, parliamentary procedures, practices and fair play. The Deputy Chairman did not allow points of order to be raised and did not allow large numbers of members of Rajya Sabha, from diverse political parties, to even speak against farm bills. Just like the substantive hate speech provisions in the IPC, the Programme Code is also much too vague and is also not applied uniformly.

round tripping

This will allow FDI inflows from group companies with multi-jurisdictionally operational entities having overseas investment and is definitely a welcome move for the multi-national corporations doing business in multiple different jurisdictions. SEBI suspects that some portfolio managers at these banks, which have significant presence in Indian financial markets, could have helped their Indian clients to route their money back into India in disguise of foreign funds via investment vehicles across various jurisdictions. Under the new rules, Indian entities can make investments in foreign companies that have Indian subsidiaries provided the whole investment structure doesn’t have more than two layers. Now, there are two interpretations about how the layers will be counted, experts said. An Indian non-financial sector entity can make direct investment in a foreign entity engaged in financial services , without prior approval.

’Revised tax treaty with Mauritius to result in stable regime’

Similarly, takeover code stresses on acquisition of control in a target company, which is similar to the control under CA, 2013. The definition of control under CA, 2013 as well as takeover code provides for exercise of control evident from the right to appoint majority of directors or to control management or policy decisions. This right may be exercised by a person or persons acting individually or in concert. The mode of exercising the right in the entity could be in any manner including i) by virtue of their shareholding or ii) management rights or iii) shareholder agreements or iv) voting agreements or v) in any other manner. The means of exercising control could be anything, including any of the five modes, however, the fact of exercising control should be evident either from the right to appoint majority of directors or to control management or policy decisions. That is the end intended to be met in order to be able to exercise control through any of the means.

Now, investments in overseas startups can only be made from internal accruals. So far, if an Indian business was buying shares of an overseas entity, it had to pay entire consideration upfront. There is no international legal definition of hate speech, and the characterisation of what is ‘hateful’ is controversial and disputed.

round tripping

It is noteworthy that although the OI Rules explicitly define a ”subsidiary” or a ”step-down subsidiary” in the context of a foreign entity, paragraph IX of Form MC under the RBI Master Directions on Reporting requires disclosure whether the Indian entity has ”control” in the foreign entity . While the Revised Framework allows corporate structures in line with the permissible layers of subsidiaries under the Companies Act, 2013 (”Companies Act”), it is not entirely clear how the layers will be calculated. Fund raising options from offshore investors were restricted if such investors had obtained investment from India.

Press Statement issued by General Secretary, Bank Employees Federation of India on 25.09.2021 ON CREATION OF BAD BANK

Shares ended in the red on the last trading day of 2022, but India emerged as one of the top performing equity markets in a year when most others were knocked down by the US central bank’s aggressive monetary tightening to combat record-high inflation. “With the government amending the tax treaty with Mauritius, combined with the regulations on POEM , many concerns around round-tripping have been addressed. Both individuals and firms are being questioned without distinction, and often some of the most credible companies have been put under the lens,” said Dinesh Kanabar, CEO of tax consultancy Dhruva Advisors.

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There are others however, who have a different perspective on the regulations though. According to them, the layering should be counted from the first level of investment. If this be the case, only one subsidiary can be set up overseas before that entity invests into India. For e.g., an individual sets up a company overseas, and that company proceeds to make acquisitions in India. Such investments were largely driven by tax considerations and the resultant benefits to the Indian party making the investment, depending on the jurisdiction being used for the overseas entity. While this may sound simple enough, Indian parties have been known to set up a maze of investments overseas that would largely be impossible to track, before routing the money back to India.

Investors making money must pay taxes; no fear of FDI loss: FM

When it becomes evident that the basic objective of a broadcast is to evoke hatred and to vilify a vulnerable minority the law must find a way to foil the harm. A lot depends on how the Court strikes this balance because hate speech, once uttered, not only leaves little https://1investing.in/ room for restitution but can also ramify to serve all manners of undemocratic ends. It will water down the labour rights for workers in small establishments having less than 300 workers and would enable companies to introduce arbitrary service conditions for workers.

The said information should be read with directions issued by RBI giving effect to above decisions. While the information is believed to be accurate to the best of our knowledge, we do not make any representations or warranties, express or implied, as to the accuracy or completeness of this information. Reader should conduct and rely upon their own examination and analysis and are advised to seek their own professional advice. We accept no responsibility for any errors it may contain, whether caused by negligence or otherwise or for any loss, howsoever caused or sustained, by the person who relies upon it. Round tripping of FDI refers to the capital belonging to a country, which leaves the country and then is reinvested in the form of FDI. The layers can either be calculated in relation to the Indian entity, in which case its step-down subsidiary (”SDS”) will be the second layer, or in relation to the foreign entity which will cover an SDS of the foreign entity as well.

Indian laws present several complications when an attempt is made to distinguish permissible speech from hate speech. NBA represents the collective voice of the news and current affairs broadcasters in India. The reskilling fund is arbitrarily framed as the Code has no idea from where the funds for the same will come apart from employers’ contributions. It has also proposed to set up a re-skilling fund for training of retrenched workers with contribution from the employer, of an amount equal to 15 days last drawn by the worker. Without the need of a standing order in increased industrial establishments due to the raised threshold, the process of hiring and firing workers will be more flexible and faster for employers which would result in increased employment. After becoming a law, orders will not be dependent on whims and fancies of executives of state governments.

In 2015, the limit for remittances was raised 10 times – from $25,000 in a year in 2004 to $250,000 in 2015. The outflows also shot up 10 times – from $1.3 billion in FY15 to $13.7 billion in FY19. The tax havens are also the favourite destinations for the outward FDI – as a study by the Indian Institute of Foreign Trade for the period of FY08 to FY15 and RBI’s latest Census on Foreign Liabilities and Assets of Indian Direct Investment Companies ( ) show. Incidentally, a 2016 study of emerging economies by the Washington-based Peterson Institute for International Economics had found a similar phenomenon. 1-year online access to the magazine articles published during the subscription period.

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