Foreign listing: only large shareholders can be taxed

                              

Foreign listing: only large shareholders can be taxed

India may tax only large foreign shareholders of domestic companies that are directly listed on foreign exchanges, and such listing may initially be limited to select jurisdictions, including the International Financial Services Center in GIFT City in Gujarat.

The overseas listing is expected to help large Indian startups raise funds at good valuations on foreign exchanges where demand may be high.

A detailed framework is expected to be announced in the Union Budget for FY 2013, which may also list the sectors where Indian companies can list and provide clarity on the taxability of investments.

The decision to allow foreign direct listing by Indian companies was announced in March 2020, but no follow-up action has been taken.

According to experts, at least two structures or mechanisms are under consideration for taxing foreign investors in Indian companies listed abroad. One, exemption of up to 10% from long-term capital gains tax to all foreign shareholders. Second, tax everyone who had shares before they were listed, when they actually exit the investment.

“There have been several deliberations at the ministries and regulatory levels. The idea is to help create value in India, but at the same time it is not like Vodafone's situation," said a government official.

In 2007, Vodafone International Holdings bought Indian telecom operator Hutchison Essar in a deal executed overseas, eventually leading to the government controversially amending the income tax law to tax the transaction. The government has recently repealed this provision and is in the process of settling the cases.

Subsequently, a clear mechanism has been provided for levying tax on indirect transfer of Indian property. Any foreign shareholder holding up to a 5% stake in an Indian company can sell offshore here without paying tax. According to sources, the same framework may apply for companies listed abroad and the limit may be revised to 10% in all cases transferred, listed, or unlisted.

According to the official, foreign retail investors trading in Indian stocks in forex are likely to be exempted from tax. However, Indian investors making profits on buying and selling equity of Indian firms listed abroad will be liable to capital gains tax under income tax laws.

“We cannot have a situation where foreigners or non-resident Indians pay taxes because they are trading in Indian shares. If that happens they will not buy the shares. In that case, the whole concept would be a non-starter,” he said.

Regarding jurisdiction, people said the government is planning to allow listing in seven to eight jurisdictions, including IFSCA GIFT City in Gujarat initially, and may add more countries to the list later.

Experts say that Indian stocks should be treated at par with US depository receipts and global depository receipts.

At present, foreign investors trading in ADRs/GDRs of Indian companies do not have to pay capital gains tax on their profits.

“Many unicorns are waiting to be tapped into global capital markets, particularly in the technology (SaaS) sector, where valuations on forex may be more attractive. Most countries, said PwC India leader (deals) Bhavin Shah Capital gains on securities listed for investors outside their domestic jurisdiction are not taxed.

“Even India does not levy tax on income by non-resident investors on the trading of ADRs/GDRs or transactions carried out on GIFT City exchanges. Tax neutrality for transactions is the key to making overseas listing successful."

“The depth of global markets will allow Indian companies to tap capital at higher valuations. If this is not allowed, Indian companies wishing to list abroad will be forced to take the SPAC route for US listing. If, however, an overseas listing of Indian companies is allowed, the company's headquarters will remain in India, which will have its benefits for the economy," Shah said.

In Hindi Article:- https://akbnews01.blogspot.com/2021/12/blog-post_301.html

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