CROSSBORDER

MERGERS&
ACQUISITIONS

Presentedby

AshutoshChaturvedi
ExecutiveDirector

PWC

PWC

Agenda
Perspective
OutboundStructuring
Funding
Acquisition&Restructuring
ForeignExchangeRegulations

PWC

Perspective
ScenarioandOverview
M&ADeals*
No

Particulars

2009

2008

2007

No.

Value
(USDbn)

No.

Value
(USDbn)

No.

Value
(USDbn)

142

5.8

172

5.21

321

2.85

II.
(a) Inbound

61

3.11

86

12.55

112

15.5

(b) Outbound

64

1.12

196

13.19

243

32.76

125

4.23

282

25.74

355

48.26

267

10.03

454

30.95

676

51.11

I.

DomesticDeals

CrossBorder(a+b)
III. TotalM&As(I+II)
IV. AverageOutbound
Deals(US$MN)

17.5

67.3

134.8

*Source:TheFinancialExpress

PWC

Perspective
ZylogSystemacquires
Brainhunterin
CanadaforCandian$
35Mn

Maricoacquires
ColgatePalmolives
Code10brandin
Malaysia

ition
s
i
u
q
c
a

e
yr
ApolloT
French
n
i

e
k
a
t
s
of
D10.2
S
U

r
o
f

y
compan
Mn

PWC

ShreeRenukaSugarsLtd
acquiresaBrazilianentity
forUSD240Mn

MSSLacquireda
globalCompany
for26.5MnEuro
s

HindustanDorr
OliveracquiresUK
basedCompany

KiriDyesand
ChemicalsLtd.
acquiresGerman
multinationalforRs
1,300crore

BancoProducts
acquiresaDutch
companyfor
17.7MnEuro

Outbound
Structuring

PWC

Imperativesofefficienttaxstructure
OverallBusiness
Strategy Verticals
/Manpower
Management/IP
Overalltax
efficiencyofthe
Group

Enhancescontrol
andaddresses
dilution

Fundraising

Holding
Structure

Consolidationof
offshoreresultsat
desiredlevel
Capturetaxcredit

Efficient
Promoters
holdingstructure
Taxefficient
repatriationof
dividendbymitigating
withholdingtaxes

PWC

Flexibilityoftax
efficiententry&
exitfroma
businessventure

OutboundInvestmentStructures
Direct
Investment
IndianCo

SPVStructure

Two Tier
SPVStructure

IndianCo

IndianCo

SPV

SPV1

India
Overseas

SPV2

Target

Taxinefficient

PWC

Target

Taxefficientand
Flexibilityinfund
movement

Target

Optimalstructure
fromtaxand
fundingperspective

SPVConsiderations
Corporatetaxrate

Mauritius

Taxationofdividend/interest
Withholdingtaxondividend/interest
Capitalgaintaxontransferof
investments/shareholding

Netherlands

Singapore

ThinCaprules
Cyprus

Easeofaccesstodebtandequitycapital
BlacklistedCountries
Treatynetwork

Luxembourg

Costofsettingupandadministration
Othernontaxconsiderationslike
politicalstability,bankingfacilityetc.

PWC

TaxHavens
BVI/Cayman
UAE

Funding

PWC

ConsiderationsforFundRaising
Leveragingand
flexibilityinraising
fundsinIndiaand
overseaslevels

Appropriate
Jurisdictions

ListinginIndiaand
overseas

Capital
Structure
Nil/lower
withholdingon
interest

MaximiseInterest
deduction
Facilitatesfamily
reorganisationand
succession

PWC

Taxefficient
instrument
10

LoanStructures
OptionI DebtinIndia

LoanatIndiaLevel

Loan

LoanatSPVLevel

LoanatTarget
Country

IndianCompany

IndianCompany

IndianCompany

SPV1

SPV1

SPV1

SPV2

SPV2

India
Outside
India

Loan
SPV2

Loan

Target

Target

HoldCo
Target

Interestcost
deductibleinIndia

PWC

Taxinefficient
Interestdeduction
againstTargets
Profits

MaximiseInterestDeduction
OptionI DebtinIndia
Loan

IndianCompany
Equity/
RPS/Loan
SPV1
Equity
SPV2
LowEquity/
Maximumloan

HoldCo
Target

PWC

InterestcostdeductibleinIndia
InterestcostdeductibleatTargetcountry
levelthroughtaxconsolidationorMerger
IndianTPregulationstobeconsideredin
caseofRPS/Loaninstrumentusedby
IndianCompany

FundingInstruments
InvestingoutsideIndia
Parameters

Equity

PreferenceShares

Returnon
income

Dividend

Taxabilityin
India

Dividendtaxableat33.99% Dividendtaxableat33.99%

TP
regulations

Noarmslengthpricing
conditions

Repayment

UsuallybywayofBuyback Dependingupontheterms
ofsharessubjecttohost
oftheinstrument
countryregulations

Aspertermsofloan
agreement

TaxBenefit

Dividendnottax
deductible

Interestistaxdeductible
subjecttothincaprules

PWC

Dividend/CapitalGgains

Loan
Interest

Interesttaxable33.99%

Capitalgainstaxableat
33.99%/22.66%
ArmslengthPricing

Dividendnottaxdeductible

Armslengthpricing

CrossBorderFinancing
DelhiTribunalinPerotSystemsTSI(India)LimitedandMumbai
TribunalinVVFLimitedheldthat:
InterestfreeloantoforeignsubsidiaryisnotinaccordancewithTransfer
Pricing
SuchtransactionhasaresultofshiftingprofitsfromIndiatocompany
situatedintaxhavencountrieswhichwouldbringdownthetaxburdenof
thegroup.
Whethersuchloanisconsideredasequityintherecipientcountryornotis
notrelevant
RBIsapprovaldoesnotputasealofapprovalontruecharacterof
transactionfromTPperspective

PWC

14

Acquisition&
Restructuring

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AcquisitionStrategy
Acquisition
of

PWC

Shares

Assets

AtSPVlevelor
OperatingCompany
level?

TobeheldfromIndia
orfromoverseas
jurisdiction?

16

AcquisitionStrategy

PWC

Shares

Assets

Purchaseofentire
business

Purchaseof
identifiedAssets

Costofacquisition
notreflectedin
Targetfinancials

Enhanced
depreciationbenefit
tothePurchaser

UsuallynoVAT
implications

VATimplications
mayarise

Consideration
directlyreceived
byowner

Consideration
payabletoTarget

17

AcquisitionStructure
IndianCo
IndianCo

India
Overseas

TargetisaFrench
Company,withassetsin
variousregions

Target

Asset
1

PWC

Asset
2

Asset
3

PostAcquisition
restructuringrequired

18

WhyRestructuring?
IndianListedCo
IndianListedCo

ValueofInternational
Businessnotcaptured
underoneoffshore
Companyforlisting
overseas

India
Overseas

SPV1

SPV2

FlexibilityofIndianand/or
OverseasListing
Overseas
Company1

PWC

Overseas
Company2

19

WhyRestructuring?
IndianParent
IndianParent

India
Overseas

Existingstructurenot
flexibleforexpansionor
futureacquisitions
SPV

Overseas
Company

PWC

Target

20

WhyRestructuring?
IndianListedCo
IndianListedCo

India
Overseas

Listing/Fundraisingof
Businessverticals
separately

SPV

Overseas
Company1

Power

PWC

Overseas
Company1

Overseas
Company1

Oil&
Gas

EPC

21

WhyRestructuring?
IndianParent
IndianParent

India
Overseas

UseofSPVforinvestment
inJV

Joint
Venture

PWC

JVPartner

22

InvestmentinUS
LimitationofBenefit(LOB)provisionsinmostoftheUSTreaties
RestrictstheflexibilityofstructuringinvestmentsintoUS
Treatybenefitstocompanieswithoutactivetradeorbusinessnotavailable
DTAAwithHungaryalsoamendedrecentlytoincludeLOBClause
Consolidationbenefits Groupconsolidtionpermittedallowingtaxshelter

oninterestcost
NothincaprulesbutEarningStrippingregulationsrestrictingtheinterest

deduction
DetailedControlledForeignCorporation(CFC)regulations
Interestdeductiontogroupcompaniespermittedonlyintheyear of

payment
Stateleveltaxes
SharesownedinaUSSPVsubjecttoFIRPTArules realestatecompanies

PWC

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InvestmentinEurope
EUSavingDirectivesondividend,interest,royalty
NotaxationinsourcecountryifpaymenttoaEUmembercountry, subjectto
prescribedconditions

Domesticantiabuseregulationsinthesourcecountrytobeconsidered

beforeallowingthebenefitofEUdirectives
Netherlands/Luxembourgarecommonlyusedjurisdictions

ECSwitzerlandagreement similarbenefitsastoEUcountry

CommonCurrency automaticforeignexchangefluctuationhedging

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Foreign
Exchange
Regulations

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ForeignExchangeRegulations

SomeHistoricalChangestoODIRegulations

InvestmentinWOS/JVabroadpermittedunderautomaticroute
Valueofinvestmentnottoexceed400%ofnetworth
SettingupStepdowncompanies/SPVallowed
Foreignentitynottobeengagedinrealestateorbankingbusiness
Loan equityparticipationinWOS/JVrequired
Divestmentsubjecttorestrictionsincludingoneyearlockinperiodand
nowriteoff
InvestmentinexistingWOS/JV valuationrequirements

Ifinvestment>US$5mn CategoryIMerchantbanker

Inallothercases CA/CPA

PWC

26

Guarantees
DebtinIndia
OptionI
GuaranteecanbeissuedonbehalfofWOS/JVonlyifthereis
equityparticipationbyIndianparty directorindirect?

CanbegivenbyPromoterCompany,GroupCompany,Sister
concernorAssociatecompany
GuaranteecanbeCorporateorPersonal,PrimaryorCollateral
NoGuaranteecanbeopenended amountandperiodof
guaranteetobespecifiedupfront
Limitedtoaoverallcapof400%ofnetworth
IsPerformanceguaranteecovered?

PWC

Issues

SomeHistoricalChangestoODIRegulations

SettingupMultipleSPV
Loan/GuaranteedirectlytoStepdownsubsidiaries hinderthe
flexibilityoffundingarrangements
Exitinvolvingwriteoff
Remittancetowardsshareapplication
CantwoSPVsetbyIndianpartyforacquisition

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PracticalProblems

SomeHistoricalChangestoODIRegulations

Valuationguidelinestobeseenatwhichlevel?
AtcompanyinwhichinvestmentismadebyIndiancompany CouldbeSPV
ValuationoftheultimateTargetcompany

FurtherremittanceoffundsnotavailableuntilreceiptofUIN planning
ofremittances
AllfundingtofollowtheSPVroute nodirectfunding
Reportingrequirementsforstepdownsubsidiariesoranyalterationin
shareholding

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Accounting

SomeHistoricalChangestoODIRegulations

ConsolidationofoverseasfinancialsinthebooksofIndianCompany
Acquisitionofalossmakingentity impacttheconsolidatedbalance
sheet
Postacquisitionimpairment MitigationthroughSchemeof
arrangement
IFRSfromApril1,2011 howdoesitimpacttheexistingconsolidated
financialstatement?

PWC

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Control&Management
ControlandManagementofWOS/JVtobeoutsideIndia
Control&managementnotdefined meansdefactocontrol
andnotdaytodaycontrol
AllBoardmeetingsshouldbeoutsideIndia
Evenpartcontrol&managementissituatedoutsideIndia,then
foreigncompanyisnotaresidentofIndia

DelhiTribunalincaseofRadhaRaniHoldings

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DirectTaxCode
GeneralAntiavoidanceRuleprovidessweepingdiscretionary
powerstotheCommissionertotreatanarrangement
impermissible,ifmainpurposeofthearrangementoranypart
ofitistoobtainataxbenefitand
inamannernotbonafideforbusinesspurpose;or
lackscommercialsubstance.
ForeigncompanymayberesidentofIndiaifpartcontroland
managementissituatedinIndiaduringanytimeoftheyear
Crossbordermergersmaynotbeallowed

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Thankyou

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