Corporate restructuring overseas – Non Resident Taxation
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May 5, 2021
|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:-
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.
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