Transcript Investing in INDIA

Mercredi 25 juin 2008
Investissements en Inde :
Quelles opportunités et contraintes ?
Wednesday, June 25th, 2008
Investing in India:
Opportunities and constraints?
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Investissements en Inde : Quelles opportunités et contraintes ?
Investing in India: Opportunities and constraints?
Frédéric Donnedieu de Vabres
TAXAND
Chairman
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Investissements en Inde : Quelles opportunités et contraintes ?
Investing in India: Opportunities and constraints?
Who is TAXAND?
– The first global network of independent tax advisors.
Our mission is to contribute to our clients' success by anticipating and
advising on the tax implications related to their most strategic business
decisions. Globalization and complexity demand sophisticated and
customized tax advice that meets the highest standards delivered by
experienced professionals who put the interests of clients first.
– Taxand was formed in 2005 by a respected group of premier independent
tax firms from countries around the world who share a common vision of
delivering seamless and responsive service to local and international
clients.
– The preeminent network of Taxand has grown exponentially, and now has
300 tax partners in more than 40 countries and more than 2000
professionals serving the global marketplace.
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Investissements en Inde : Quelles opportunités et contraintes ?
Investing in India: Opportunities and constraints?
TAXAND members include:
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Argentina
Australia
Belgium
Brazil
Canada
Chile
China
Colombia
Cyprus
Denmark
Finland
France
Germany
Greece
India
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Indonesia
Italy
Japan
Korea
Luxembourg
Malaysia
Malta
Mauritius
Mexico
Netherlands
Norway
Pakistan
Peru
Philippines
Poland
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Portugal
Puerto Rico
Romania
Russia
Singapore
Spain
Sweden
Switzerland
Turkey
UK
Ukraine
USA
Venezuela
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Investissements en Inde : Quelles opportunités et contraintes ?
Investing in India: Opportunities and constraints?
Ms. Manju
EMBASSY OF INDIA, Paris
First Secretary, Economic & Commercial
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EMBASSY OF INDIA IN FRANCE
« The
opening up of the Indian economy
&
opportunities for French companies »
at Le Meurice on 25.06.08
MANJU
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(Economic
& Commercial)
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GENERAL FACTS
AREA
3 287 590 km²
(ranks 7th in the world)
1 103 in 2007
POPULATION
(millions)
(2nd rank)
(demographic growth: 1.4%)
SHARE IN THE WORLD
POPULATION
17.06 %
(2006)
DENSITY OF THE
POPULATION
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324 inhab./km²
(2001 census)
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GENERAL FACTS
GDP GROWTH RATE
(2006-07)
INFLATION
(average in 2006-07)
9.6%
(up from 3.8% in 2002-03 & expected to
grow at 9.5%)
Between 4.5-5%
PER CAPITA INCOME
(at current prices by end 2006-07)
GDP/INHAB.
USD 797
(estimation of USD 1 000 by 2007-08)
3rd in the world in terms of PPP
(OECD Report 2007)
FOREIGN EXCHANGE
RESERVES
USD 261 billion
(2007)
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GENERAL FACTS
CONTRIBUTION
TO GDP
POPULATION
ENGAGED
(2006-07)
(2007)
AGRICULTURE
18.5 %
58%
INDUSTRY
26.4 %
17%
SERVICES
55.1 %
25%
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INDIA-POLITY
Federal Union of 28 States & 7 Union Territories
neighbouring Pakistan, China, Nepal, Bhutan, Bangladesh,
Myanmar & Sri Lanka. Hindi and English are the official
languages; 18 main languages recognized by the Constitution;
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- Biggest parliamentary democracy in the world: sovereign,
socialist & secular republic;
- The President is the Head of the State (5 years) & acts on
the advice of the Cabinet or the Council of Ministers led by
the Prime Minister;
- Independant judicial system;
Source : www.goidirectory.nic.in
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INDIA’S ECONOMIC REFORMS

Reform process initiated in 1991 by Dr. Manmohan Singh (the then
Minister of Finance & current Prime Minister since 2004).
The main lines of the liberalization
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a larger role for the private sector (the list of 18 industries reserved
entirely for the public sector was drastically reduced to 3 : defense
aircrafts & warships, atomic energy & railway transport); energy, air
transport, telecoms & petroleum industry opened up to private
investments;
FDI can reach & exceed 51% of the capital;
market forces allowed free play;
development of mergers & purchases;
drastic reductions of customs duties on import of equipment &
intermediary goods (excessively high tariffs : the top rate was 400%,
as much as 60% of tariff lines were subject to rates ranging from
110-150% & only 4% of the tariff rates were below 60%);
reduction of the corporate tax;
Source : www.dipp.nic.in
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POST 1991: A BUOYANT ECONOMY

Peak customs tariff has come down to 45% with the average tariff rate
declining to less than 25%;
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The economy has grown from around 6% between 1992-2002 to 9.6%
in 2006-07 with full macroeconomic stability;
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Poverty reduced by 6% every year since 1991
(Per capita income: USD 797 at current prices in 2006-07);
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The large & emerging domestic market (250-300 million consumers) is
attracting more & more Fortune 500 companies;
Source : www.indiainbusiness.nic.in
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FDI IN INDIA

FDI is permitted in most sectors through the ‘Automatic Route’ except
in:
- atomic energy
- gambling & betting
- tobacco
&
- retail trading (except for single-branded product)
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Global incoming FDI in India:
FY 2006-07: USD 17 billion (USD 2.8 billion in 1996-97)
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FDI POLICY AND PROCEDURE
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FDI POLICY AND PROCEDURE
(contd.)
•
FDI under automatic route does not require prior approval either
by the Government or Reserve Bank of India (RBI).
•
The investors are only required to notify the regional office of RBI
within 30 days of receipt of inward remittances and file the required
documents within 30 days of issue of shares to foreign investors.
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FDI POLICY AND PROCEDURE
(contd.)
•
FDI in activities not covered under automatic route (as indicated
earlier) require prior Government approval. Applications for such
proposals, except Export Oriented Units (EOU) and FDI in retail
trading (single branded product), should be submitted to the
Foreign Investment Promotion Board, Ministry of Finance.
Applications for EOU and for FDI in retail trading (single branded
product) should be submitted to the Secretariat for Industrial
Assistance, Department of Industrial Policy & Promotion, Ministry
of Commerce & Industry.
•
Applications can be made in Form FC-IL, which can be
downloaded from www.dipp.gov.in. Plain paper applications
carrying all relevant details are also accepted. Applications can also
be submitted with Indian Missions abroad who forward them to
Department of Economic Affairs for further processing.
•
No fee is payable.
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ADVANTAGE INDIA
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ADVANTAGE INDIA
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Biggest parliamentary democracy in
the world;
Federal Union of 28 States & 7
Union Territories (potential market
at the National or a local State level
for a foreign company);
One of the largest economies in
the world with sustainable GDP &
FDI growth;
Government’s proven commitment
to the deregulation process;
Sophisticated financial sector;
Intellectual Property (IP) rights are
TRIPS (Trade-related aspects of IP
rights) compliant;
Evolved state of Indian law &
judiciary that secures contracts,
copyrignts & patents;
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FDI procedures simplified;
Large workforce that is Englishspeaking, highly skilled (IIT, IIM &
other institutions) & competitive;
Low corporate tax rate : 33.67%
for an Indian company & 41.82%
for a foreign one (2007);
Liberal policy on technology
collaboration;
50% of the population is under 25
years (India will remain a young
nation with the median age going
up from 21 in 2000 to 26 in 2025);
Source : www.indiainbusiness.nic.in
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SCOPE AREAS FOR
FRENCH COMPANIES
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SCOPE AREAS FOR FRENCH COMPANIES
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AUTO COMPONENTS: During 2006-07, the Indian automobile industry
produced over 2.06 million 4-wheelers & over 9 million
2 & 3-wheelers .
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Many international auto majors are manufacturing & outsourcing their
components from India (GM, Toyota, Hyundai, Volkswagen, Ford, Mercedes,
etc.). Many SME are involved in the manufacture of auto parts & components.
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Two French companies in India: Filtrauto (auto equipment) & Ateq (auto
control)
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SCOPE AREAS FOR FRENCH COMPANIES
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BIOTECHNOLOGY: From a small beginning 25 years ago, the sector has
emerged as a dominant one providing employment to hundreds of thousands
of skilled & qualified people.
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Number of biotech firms: 325 across the country mainly SME are
concentrated in Mumbai/Pune belt, Hyderabad, Bangalore, New Delhi &
Chennai and generating revenues of USD 2 billion (estimated to grow to USD
5 billion by 2010).
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Annual growth: 35-40% for the last 3 years.
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An Ernst and Young survey ranks India 3rd among 5 emerging biotech leaders in
the Asia-Pacifi region.
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India: the world’s largest vaccine producer.
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Opportunity for new investments is estimated to be in the USD 1.5-2 billion
range.
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Ex: Avasthagen, a small R&D company in biopharmaceuticals & innovation;
today, it is valued at € 200 million with investors like Danone, Nestlé, Cipla,
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SCOPE AREAS FOR FRENCH COMPANIES
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PHARMACEUTICALS: India ranks 4th in the world in terms of production
by volume, accounting for 8% of the world production.
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India produces 20-24% of the world’s generic drugs (in terms of volume).
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The industry is worth USD 6 billion, growing at over 13% per year.
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McKinsey study (2007): «The industry has the potential to reach USD 25
billion by 2010 with its current growth rate».
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Indian companies supply almost all the country’s demand for formulations &
nearly 70% of demand for bulk drugs, many in the SME sector.
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The potential is large both in the domestic markets and for exports.
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SCOPE AREAS FOR FRENCH COMPANIES
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AGROFOOD: one of the largest food producers in the world; India is
looking for investments in infrastructure, packaging & marketing in the food
processing sector (USD 15 billion).
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SCOPE AREAS FOR FRENCH COMPANIES
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SCIENCE & TECHNOLOGY: With the 3rd largest available scientific
manpower in the world, the Indian science & technology industry has been
growing well above world average.
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Space Technology: India is one of the few countries with expertise to
conceptualise, design & manufacture satellites & the capability to launch them
into space. Also, ISRO is the world’s 3rd non-US supplier of 1-metre imageries
& holds nearly 25% of the global free-play imageries market. More than 500
companies (50% of SMEs) are associated with our space programme. The
programme itself transferred 279 technologies to industry for
commercialisation.
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Renewable Energy: India has been tapping energy from renewable sources to
meet its growing demands. India: the 3rd largest producer of solar photovoltaic
cells in the world; the world’s 4th largest wind power user; Suzlon Energy is the
6th largest in the world & the largest in Asia; India has the world’s largest
number of biomass gasifier systems & has the 9th largest solar thermal power
generation in terms of million units per square meter. A large number of
SMEs involved in this sector (French company Velcan Energy in the Biomass
power plant sector & small hydropower plants sector).
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Civil Nuclear Energy: Opportunities in many technical fields : laser & accoustic
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microscopes, spectrometers,
etc. Presentation
for use in this field.
INDO-FRENCH RELATIONS
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INDO-FRENCH RELATIONS
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India-France bilateral relations have been marked by political
understanding & growing interaction at the highest levels.
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In recent years, economic & commercial linkages have become more
important.
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Cultural cooperation has intensified & deepend: «Lille 3000» in 200607 was a 4-month long cultural festival showcasing India’s cultural
diversity. From April to July 2007, an exhibition showcasing ancient
artefacts & culture of India was held at the Grand Palais (Paris).
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Tourism to & from India has increased substantially. The Embassy of
India issued 165 145 visas in 2007 (the highest number of visas as
compared to any other Embassy in Paris). Out of these, Business visas
were 20 420 & Employment visas 487.
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INDO-FRENCH INVESTMENTS
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French investments in India (August 1991-March 2007)
France is the 8th largest investor in India representing 1.98% of global
investments in India.
- Actual inflows: USD 900 million (well below the potential that exists)
Sectors: fuels, chemicals, cement, services sector, electrical equipment,
software, etc.
- 915 financial & technical collaborations approved between Aug., 1991-March
2007
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Indian investments in France
During the period 2001-06, a total of 20 Greenfield investments were made by
Indian companies which created/preserved 1 110 jobs in France. In 2007,
Indian companies invested more than € 0.5 billion in France in various sectors
including plastics, lighting, auto parts, pharmaceuticals & IT.
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INDO-FRENCH TRADE
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According to the French trade statistics, the India-France bilateral trade went
up by 200% between 1997-2006, with Indian exports to France growing by
about 165% over the same period.
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Bilateral trade comprises 0.4% of France’s global trade & 1.5% of India’s
global trade.
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Bilateral commercial trade between May., 07-April., 08:
€ 6.29 billion
French imports for the same period:
French exports for the same period:
€ 3.08 billion
€ 3.21 billion
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During President Nicolas Sarkozy’s meeting with Prime Minister Manmohan
Singh in January 2008, both leaders decided to increase bilateral trade to € 12
billion by 2012.
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INDO-FRENCH TRADE
(May., 07-April., 08)
Top 5 items of exports from
India to France :
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Refined petroleum products
Underwear & other wearing
apparel
Apparel & accessories
Textile articles
Basic organic chemicals
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Top 5 items of exports
from France to India :
Aircraft & spacecraft
Instruments & appliances
for measuring, checking &
testing
Steel products
Electrical equipment &
apparatus
Broadcasting apparatus
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FRENCH COMPANIES IN INDIA
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Currently, there are around 500 French companies based in India
mainly as subsidiaries but also as joint ventures & liaison offices. Many
are expanding their operations in India.
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These enterprises are mainly situated in New Delhi & its region (31%),
Mumbai & Pune (26%), Bangalore (15%) & Chennai (10%).
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They globally recruit more than 40 000 persons.
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The major French companies based in India: Dassault Aviation,
EADS, Saint Microelectronics, Thales, Technip, Systra, Alstom, Areva,
Saint-Gobain, Cap Gemini, Onyx, Axa, Lafarge, Aventis, Schneider
Electric, Pernod Ricard, Alcatel-Lucent, Louis Vuitton, Chanel,
L’Oréal, GDF, Total, Danone, Air Liquide, Essilor International, etc.
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CONTACT
15, rue Alfred Dehodencq
75016 - Paris
Tel. : 01 40 50 50 41, 42 or 45
Fax : 01 45 20 80 19
E-mail : [email protected] or [email protected]
Web Site : www.amb-inde.fr
THANK YOU FOR YOUR ATTENTION
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Investissements en Inde : Quelles opportunités et contraintes ?
Investing in India: Opportunities and constraints?
Karim Vissandjee
AREVA T&D
CFO
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Investissements en Inde : Quelles opportunités et contraintes ?
Investing in India: Opportunities and constraints?
Ludovic Both
ALOE PRIVATE EQUITY
CFO
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Investissements en Inde : Quelles opportunités et contraintes ?
Investing in India: Opportunities and constraints?
Mukesh Butani
BMR & Associates
Founding partner
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Preliminary and tentative
Draft - For discussion purposes only
Tax and Regulatory
Tax Advisory Services
India Business Update
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INVESTING IN INDIA
June 25, 2008
Mukesh Butani
Preliminary and tentative
Draft - For discussion purposes only
BMR Advisors
Tax Advisory Services
India Business Update
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CONCEPT OF ‘PE’
‘PE’
Physical (Office or place of
management etc)
PE not formed
PE not formed
Agency
Purchase of
goods/merchandise
Preparatory and
Auxiliary Activity
Storage or display of
goods
Acting as
communication
channel
Construction site
for short duration
PE is formed if
Preparatory and
auxiliary activity of
a dependent agent
Independent
Agent
PE is formed if
Activity is income generating
i.e. concluding contracts,
securing contracts
Services to associated
group enterprises
Dependent Agent
Concluding
Contracts
Securing orders
-After sales services
-Negotiating price
Preliminary and tentative
Draft - For discussion purposes only
Tax Advisory Services
- Repeat sales
India Business Update
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TAXATION OF FOREIGN ENTERPRISE
Under the
domestic laws
• Taxable income:
– received in India
– accruing or arising in India or from
business connection in India
– Fee for technical services (FTS)
/royalty for business in India
Under the DTAA
DTAA
overrides
domestic law
• Taxable in respect of following
income:
business profits to the extent
attributable to a PE in India
Fee for technical services/
royalty paid by an Indian
company
Tax
rates for various income streams are mentioned in subsequent slide
Preliminary and tentative
Draft - For discussion purposes only
Tax Advisory Services
India Business Update
TAX RATES AT A GLANCE
Particulars
Tax Rate (percent)
Corporate income tax
•
Long term capital gains on shares
•
Short term capital gains on shares
•
Dividends withholding tax
Nil
Interest
10 /20
Royalties
10
Fees for technical services
10
Dividend distribution tax (“DDT”)
15
30 (domestic company)
• 40 (foreign company)
Nil (if Securities Transaction Tax (“STT”)
has been paid)
• 15 (If STT has not been paid)
15 (If STT has been paid)
• 30 (If STT has not been paid)
Preliminary and tentative
Plus
surcharge 10 % - domestic company, 2.5% - foreign company and education
Draft - For discussion purposes only
cess of 3%, if rates as per domestic law are applied
Tax Advisory Services
India Business Update
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HOT TOPICS WITH INDIAN REVENUE
Non resident to non resident transactions – big deals under the tax
scanner
Taxability of offshore services
Drawings & designs embedded in supplies
Characterisation of income – Royalty vs Business income
Taxability of packaged software
Business Connection and PE
Attribution of profits to PE
Capital versus Revenue expenditure
Transfer Pricing
Preliminary and tentative
Draft - For discussion purposes only
Tax Advisory Services
India Business Update
TRANSFER PRICING LEGISLATION - OVERVIEW
Economic analysis –
Computation of arm’s
length price
Functional analysisDetailed description of
transaction
Factors affecting
transfer price
Audit / litigation
procedures
Double taxation
avoidance
clauses
Methods to compute
arm’s length price
TP Regulations Features
Arm’s length
principle
Dispute
resolution
mechanisms
Overview of the Transfer Pricing Legislation
Preliminary and tentative
Draft - For discussion purposes only
Tax Advisory Services
India Business Update
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RECENT TRANSFER PRICING DEVELOPMENTS
Aggressive attitude of Revenue
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Focus on comparability analysis (functions, risk and asset)
Reluctance to accept ‘low margin’ and ‘loss making’ comparables
Banks, Telecom, Consumer durables, Pharmaceutical, Software and IT
enabled services (ITeS) closely scrutinized
Global Regional cost allocation arrangements accepted based on sound
allocation keys and strict benefits test
Increased reliance on OECD guidelines
Specialist revenue officers for Transfer Pricing cases
Focus moving from compliance to planning
Three rounds of audits completed; cumulative adjustments of INR
24 billion* (FY 2002-03) escalating to INR 35 billion* (FY 2003-04)
Preliminary and tentative
Draft - For discussion purposes only
* Approximate figures
Tax Advisory Services
India Business Update
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FUTURISTIC ISSUES
Need for CFC legislations?
Introduction of a ‘New Income Tax Code’
Roll out of GST by 2010
Stable rate regime for indirect taxes
Service tax / VAT to be revenue engine
Preliminary and tentative
Draft - For discussion purposes only
Tax Advisory Services
India Business Update
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Preliminary and tentative
Draft - For discussion purposes only
Tax Advisory Services
Challenge Us
India Business Update
| 48
Investissements en Inde : Quelles opportunités et contraintes ?
Investing in India: Opportunities and constraints?
Frédéric Donnedieu de Vabres
TAXAND
Chairman
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Tax regime applicable to the main flows
between India and France (1/2)
Capital gain taxation :
right to tax granted to India by the
Treaty if stake higher than 10%
taxation rate between 0 and 30%
FrenchCo
>50%
Royalties
WHT : 10%
Interest
WHT : 10%
dividends
WHT : 0
Indian
Target
French CFC rule :
Theoretically applicable in case of
Indian tax holiday
Exception if industrial or commercial
activity carried out in India
DDT : 16,995%
Two major issues to be addressed:
 Capital gain taxation upon the disposal of Indian shares
 Indian Dividend DistributionVisual
Tax (DDT)
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Tax regime applicable to the main flows
between India and France (2/2)
Indian Capital gain taxation can be avoided
thanks to an intermediate holding located in:
Mauritius
Cyprus
Singapore
Applicable Treaties grant the exclusive right to
tax to the Residence State
Treaty shopping ?
FrenchCo
Dividends
WHT
Mauritius : 0
Cyprus : 0
Singapore : 0
100%
Intermediate
holding
Mauritius
Cyprus
Singapore
>50%
Indian
Target
Buy-back
of shares
Indian DDT may be avoided through a buyback of shares
WHT : 0
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Investissements en Inde : Quelles opportunités et contraintes ?
Investing in India: Opportunities and constraints?
Ms. Manju, First Secretary, Economic & Commercial,
Embassy of India, Paris
Karim Vissandjee, CFO, AREVA T&D
Ludovic Both, CFO, ALOE PRIVATE EQUITY
Mukesh Butani, Founding partner, BMR & Associates
Frédéric Donnedieu de Vabres, Chairman, TAXAND
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