Large Indian companies shelve overseas investment plans on concerns over OECD global tax deal. Large Indian companies shelve overseas investment plans on concerns over OECD global tax deal.
Many large Indian companies looking for overseas investment have now shelved their plans following a global tax deal over concerns of additional taxes and compliance challenges related to the new framework adopted by the world’s leading industrial bloc, the Economic Times mentioned in a report.
Large companies, especially in the information technology (IT) and information technology-enabled services (ITeS) sectors, were looking to expand in the Middle East, Africa and other Asian countries.
To route these investments, the companies were looking to set up entities in tax havens and countries such as Dubai, Singapore, Ireland, Mauritius and the UK, as part of their global structuring and tax and compliance planning.
OECD Global Tax Deal
The Organisation for Economic Cooperation and Development’s (OECD) global tax deal now means that the Indian companies could see their tax liability go up in the near future.
Earlier this month, the OECD had announced that 136 countries had agreed to join an accord to impose a two-pillar global tax reform plan.
As per the deal, large multinationals have to pay a minimum tax of 15% on their global incomes from 2023 and those with profits above a threshold will now have to pay taxes in the markets where they conduct business.
Iegal and Tax Experts
Indian multinationals have now reached out to their legal and tax experts to figure out whether they can still go ahead with the investments or they need additional ring fencing of their entities in the tax havens, the financial daily mentioned.
“Under OECD deals, currently only large companies are covered but for several Indian companies that are planning to use certain jurisdictions to make investments in the Middle East, Africa or Asia, this could cause complications in the future,” the publication quoted Uday Ved, partner at tax advisory firm KNAV as saying.
“Most Indian companies want to hold certain entities in countries such as Singapore or UAE to ring fence holding entities here and the tax savings are incidental, but the global tax deal means that they might have to tweak some of these structures.”
Take a large multinational that is looking to invest in Australia, for instance.
Indian Holding company
The company was looking to set up an entity in Singapore or Mauritius through which the investment would have been made. “The main purpose was to create a buffer between the Australian entity and the Indian holding company, and tax advantage was incidental,” a tax lawyer advising the company told the financial daily.
The company has now reached out to legal advisors to figure out if such a structuring could result in additional taxes or any other compliance issues.
“The biggest problem is whether there could be additional taxes even on the entities based in Singapore or Mauritius. While tax treaties with India would come into play in this regard, the company doesn’t want to let go of control (in Australia) and still wants to limit the risks to its Indian holding company,” the legal expert said.
OECD Deal
Traditionally, large Indian groups tend to set up entities in Europe or Singapore to invest outside India. These entities practically work as a pass through vehicles and attract no taxes. However, the OECD deal would mean that in the years to come, if the global taxes are less than 15% additional taxes could apply.
While the OECD deal, as of now, is only applicable to around 100 multinationals that have a particular size, this is set to create tax complications for other companies and entities that are present in tax havens, the business daily mentioned citing tax experts.
The new OECD framework would mean that large companies will have to disclose their global revenues and pay taxes on them. (ETNowNews)
