In this blog post, Rebecca Furtado, an Instructional Analyst and a Lawyer who is currently pursuing her MA from Indira Gandhi National Open University, New Delhi and a Diploma in Entrepreneurship Administration and Business laws from NUJS, Kolkata, discusses the Indian tax structuring for outbound investments from India to the Middle East.
Today, the world is changing faster than a caterpillar turning into a butterfly. Change in the world does not signify only technological growth but also caters to growth regarding the economy and the market. Economic and financial growth has broken up the borders and has grown by leaps and bounds. A major development in the field of taxation and finance includes the introduction of global finance and active participation of investors in the global economy irrespective of nationality or creed. Technological advancement and the opening up of global borders have led to the transmission of data at a much higher rate which has led to an increase of participation of individuals or leading corporate in the global financial market.
Apart from markets, primer financial firms or corporate houses have been compelled to structure their business with efficiency to sustain the competitive edge amongst corporate competitors. Tax structuring then goes beyond these national borders to sustain the business and to provide a continuous flow of monies back into the economy.
Over the last few decades, Indian companies have actively participated in the acquisition and investments process abroad. A report suggests that the number of outbound investments has increased by nearly fifty percent and particularly over the last decade. While gaining approval for the investments, most people would rather choose the automatic route rather than the approval route.
Tax systems are neutral when they do not influence the economic choices of the taxpayers on cross-border transactions.[1] Most developing countries prefer capital import to ensure a rational proportionality between the investment decisions of both domestic and foreign accounts. The flow of capital, investment and trade learning requires businesses in this fast changing world to exploit emerging opportunities and to provide a quick response to international competition.
Structuring a business means constructions of layers to ensure smooth and efficient transactions. While structuring a business, it’s pertinent to avoid the creation of double taxation methods. Taxation ensures the collective money going into the treasury.
Indian tax system provides for Unilateral and DTAA relief on foreign taxes paid by Indian residents. However, it has been reported that only 40 or 50 percent of the earnings reach the Indian parent due to the repatriation of dividends back into the country. An important cause is the double taxation method both applied by the Indian Company and its foreign subsidiary.
While looking at the Middle East, taxes are imposed only on oil, gas and petrochemical companies. Taxes are structured by government concession agreements and in agreements with the rulers of the Middle East. The Middle East does not impose taxes on withholding. A good structure minimizes or defers taxes on the global scale lawfully to meet business needs and objectives of any monetary transactions.
Footnote:
[1] Roy Rohatgi, International Tax Planning
