Monthly Archives: May 2014

  • External Commercial Borrowings (ECB) from Foreign Equity Holder (FEH) & Outbound Investment by a Limited Liability Partnership (LLP)

    May 20 2014

     

    As per the extant ECB policy, ECBs from direct foreign equity holders (FEHs) are considered both under the automatic and the approval routes. ECBs from indirect equity holders and group companies and ECBs from direct FEH for general corporate purpose are, however, considered under the approval route. Further, any request for change of the ECB lender in case of FEH requires RBI’s approval.

    Reserve Bank of India has come out with a circular delegating powers to AD Banks to approve raising of ECBs for the following cases under the automatic route:

    1. By companies belonging to manufacturing, infrastructure, hotels, hospitals and software sectors from indirect equity holders and group companies.
    2. Companies in miscellaneous services from direct / indirect equity holders and group companies. Miscellaneous services mean companies engaged in training activities (but not educational institutes), research and development activities and companies supporting infrastructure sector. Companies doing trading business, companies providing logistics services, financial services and consultancy services are, however, not covered under the facility.
    3. By companies belonging to manufacturing, infrastructure, hotels, hospitals and software sectors for general corporate purpose.ECB for general corporate purpose (which includes working capital financing) is, however, permitted only from direct equity holder.
    4. Change of lender when the ECB is from FEH – direct / indirect equity holders and group company.

    Overseas Direct Investment (ODI) /Outbound Investment by a LLP permitted

    Limited Liability Partnership (LLP), registered under the Limited Liability Partnership Act, 2008 is notified as an "Indian Party" for regulations w.r.t Overseas Investment and accordingly an LLP can undertake financial commitment on behalf of a JV/WOS abroad.

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  • Secondment of Employees could Result in Permanent Establishment (PE) – Delhi High Court

    May 7 2014

    Seconded employees typically work under the direction, control and supervision of the Indian affiliate during their secondment. The foreign company pays the salary of the seconded employees abroad (i) to continue the social security contribution and (ii) for convenience purposes. The said salary paid is then recovered from the Indian affiliate on a cost-to-cost basis.

    Indian revenue authorities are closely monitoring these kinds of arrangements for possible Permanent Establishment (PE) exposure and for taxing the recharge of salary as Fees for Technical Services/Fees for Included Services (FTS/FIS).

    Recently, the Delhi High Court (Delhi HC), in respect of the writ petition filed in the case of Centrica India Offshore Private Limited (Indian Entity), had to decide i)whether the reimbursement of salary cost paid by Indian Entity to the overseas entities is taxable in India; if yes, ii)whether withholding of tax thereon was required u/s 195 of the Income-tax Act (the Act). A further issue raised was whether employees deputed to India created Service PE of a foreign company in India or not.

     

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