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Corporate restructuring overseas – Non Resident Taxation

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May 5, 2021

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7 mins read

Corporate restructuring overseas – Non Resident Taxation – International Taxation Case Study

Sunio Japan, is a global company, which has subsidiaries in various countries. Five of its subsidiaries , hold 100% share capital of Sunio India, which were acquired by them at various cost over the years. The group undertook Corporate restructurings in FY 2018-19, wherein certain group reorganizations were carried out. The relevant details are as under (all amounts are in Rs. Crores) : –

S.

No

Entity – All entities are WOS of Sunio Japan, except Sunio Malaysia which is WOS of Sunio China Cost of Acquisition  Corporate Restructuring Tax Status of transaction in local jurisdiction
1 Sunio China 50   Merged with Sunio Pty Singapore Exempt in China and Japan
2 Sunio Pty Singapore 60 Demerged Division Containing shares of Sunio India to Sunio USA  Exempt in Singapore
3 Sunio Malaysia – Substantial value derived from India 40  Shares of Sunio Malaysia were transferred to Sunio Pty Singapore Taxable in Malaysia and China

Examine the tax implications in above Corporate Restructuring, from an India Tax Perspective  ?

Corporate restructuring overseas – Non Resident Taxation – International Taxation Case Study – Solution:-

International Taxation Services

a. Merger of Sunio China , which is holding shares of Sunio India, with Sunio Pty Singapore, results in transfer of shares of an Indian company. Such transfer of shares  shall not be regarded as transfer and would be exempt from tax , as the following conditions  are  satisfied  : –

  • At least 25 percent of the shareholders of Sunio China continue to remain shareholders of Sunio Pty Singapore (both are WOS of Sunio Japan) ;
  • Such transfer should not attract capital gains in the country in which Sunio China is incorporated (given).

b. Where Sunio Pty Singapore , demerged division containing shares of Sunio India to Sunio USA, it would be covered u/s   47(vic) which   provides that  any transfer  of shares of Indian company (ICO), in a demerger, by the demerged foreign   company (Sunio Pty Singapore) to   the resulting foreign company (Sunio USA) shall not be regarded as transfer if following  conditions are satisfied –

  • Shareholders holding at least 3/4 of the shares (in value) of the demerged foreign company (Sunio Pty Singapore) continue to remain shareholders of the resulting foreign company (Sunio USA) – (both are WOS of Sunio Japan);
  • Such transfer does not attract tax on capital gains in the country, in which the demerged foreign company (Sunio Pty Singapore) is incorporated (given) . Accordingly, such transfer of shares shall not be regarded as transfer and would be exempt from tax.

c. Transfer of shares of Sunio Malaysia , which is a subsidiary of Sunio China,  to Sunio Pty Singapore  in scheme of merger would result in transfer of shares of Sunio India held by Sunio Malaysia. Section 47(viab) provides that any transfer, of a capital asset, being share of a foreign company (referred to in Explanation 5 to section 9(1)(i)), which derives, directly or indirectly, its value substantially from the share or shares of an Indian company, which are held by the amalgamating foreign company (Sunio China ),  to the amalgamated foreign company  (Sunio Pty Singapore  ) in a scheme of amalgamation, shall not be regarded as transfer, provided the following conditions are satisfied : –

  • At least 25 percent of the shareholders of the amalgamating foreign (Sunio China) company must continue to remain shareholders of the amalgamated foreign company (Sunio Pty Singapore) – (both are WOS osSunio Japan);
  • Such transfer should not attract capital gains in the country in which the amalgamating company is incorporated. However, it is given that such transaction is taxable in China and hence the exemption shall not be available.

Such transaction would be liable to capital gains tax in India.

For any queries, please write them in the Comment Section or Talk to our tax expert

Arinjay Jain

Bio of author

Arinjay is a Chartered Accountant with more than 20 years of post-qualification experience. He worked as Director, in the M&A Tax Division at KPMG in India. Presently, he is advising several MNCs in UAE on Economic Substance Regulations and impact of the UAE Corporate Tax Law on their business and clients across globe on International Tax issues . He is a well recognised Trainer of International Tax and UAE Corporate Tax. The areas of service include the following : - Advise and Compliance relating to International Tax Issues; Advise relating to UAE Corporate Tax Issues; Advise and Compliance relating to UAE Economic Substance Regulations; Advise and Compliance relating to Indian Income Tax Issues; Other connected matters from a Regulatory perspective.

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