CROSS BORDER RESTRUCTURING TAX AND LEGAL ISSUES CASE STUDY

1. CROSS BORDER RESTRUCTURINGTAX AND LEGAL ISSUESCASE STUDY • 11TH October 2013 • BELA MAO • COUNTRY TAX LEAD • SHELL INDIA MARKETS PRIVATE LIMITED

2. General points for consideration • Under foreign law • Capital gains tax • Deemed dividends implications • Any restrictions under foreign law impacting the merger • Under Indian law • Tax implications in India • Tax neutral merger? • Impact on tax attributes? • GAAR • Transfer pricing • Stamp duty implications? • Key regulatory implications • Companies Act, 1956 • Companies Act, 2013 • Competition Act, 2002 • SEBI • FEMA Cross Border Restructuring - Tax and Legal Issues

3. Merger of foreign companies – Base case F Co Issue of shares Hold Co F Co 1 Merger Outside India India X Co Facts • Hold Co a foreign entity holds investment in an Indian company X Co • Hold Co merges with F Co 1, which issues shares as consideration to F Co, the ultimate holding company • Hold Co does not derive substantial value from X Co Implications • Hold Co exempt under Section 47 subject to conditions • F Co • No exemption under Section 47 • Extinguishment of Hold Co shares results in transfer • However, no tax implications since Hold Co does not derive substantial value from X Co • For F Co 1, costs of shares of X Co would be same as Hold Co – Section 49 Cross Border Restructuring - Tax and Legal Issues

4. Merger of foreign companies – Base case (contd…) F Co Issue of shares Hold Co F Co 1 Merger Outside India India X Co Implications (contd …) • Would there be GAAR considerations if Hold Co is merging into a jurisdiction with whom India has a more favourable treaty? • Would X Co share transfer be outside TP purview if exempt under Section 47? Is this on the same footing as an exempt share transfer under a treaty? • Could F Co 1 issue of shares be subject to TP regulations(AEs can be 2 NRs)? Would this be considered • A transaction having a bearing on the assets of the enterprises • Capital financing • Business restructuring? Cross Border Restructuring - Tax and Legal Issues

5. Merger of foreign companies – Cash Consideration F Co Cash Hold Co F Co 1 Merger Outside India India X Co Facts • Hold Co a foreign entity holds investment in an Indian company X Co • Hold Co merges with F Co 1, which issues shares as consideration to F Co, the ultimate holding company • Hold Co does not derive substantial value from X Co Implications • Hold Co does not derive substantial value from X Co • Hold Co not exempt under Section 47 – can there be tax? No consideration received by Hold Co • F Co - no tax implications since Hold Co does not derive substantial value from X Co • F Co 1 - Section 49 not applicable. Possibility of cost step up? Cross Border Restructuring - Tax and Legal Issues

6. Merger of foreign companies – Cash Consideration (contd…) F Co Cash Hold Co F Co 1 Merger Outside India India X Co Implications (contd …) • Would there be GAAR considerations if Hold Co is merging into a jurisdiction with whom India has a more favourable treaty? Cross Border Restructuring - Tax and Legal Issues

7. Merger of foreign holding company into Indian subsidiary F Co Hold Co Outside India India X Co Facts • Hold Co merges into X Co • Resultantly, F Co has immediate holding in X Co Implications • Exemption to Hold Co available under Section 47 subject to conditions • Tax / company law implications in resident country of Hold Co to be analysed • FEMA / company law implications in India to be analysed • Would X Co share transfer be outside TP purview if exempt under Section 47? Is this on the same footing as an exempt share transfer under a treaty? • Would there be GAAR implications if F Co is from a more favourable treaty country? • TP implications? ‘Business restructuring’ between AEs? Cross Border Restructuring - Tax and Legal Issues

8. Merger of Indian subsidiary into Hold Co F Co Hold Co Outside India India X Co Facts • X Co merges into Hold Co • F Co continues to be holding company of Hold Co Implications • Outbound mergers have been prescribed in the Companies Act, 2013 • Corresponding tax implications have not been prescribed • Tax / company law implications in resident country of Hold Co to be analysed • TP implications? ‘Business restructuring’ between AEs? Cross Border Restructuring - Tax and Legal Issues

9. Merger of Hold Co with ultimate Hold Co F Co Hold Co Outside India India X Co Facts • Hold Co merges into F Co • Resultantly, F Co has immediate holding in X Co Implications • Tax exemption to Hold Co in India subject to conditions under Section 47 • Tax / company law implications in resident countries of Hold Co and F Co to be analysed • Would X Co share transfer be outside TP purview if exempt under Section 47? Is this on the same footing as an exempt share transfer under a treaty? • GAAR implications if F Co is in a more favourabletreaty country? • Other TP implications? ‘Business restructuring’ between 2 NR AEs? Cross Border Restructuring - Tax and Legal Issues