Investing in INDIA

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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
• Argentina
• Australia
• Belgium
• Brazil
• Canada
• Chile
• China
• Colombia
• Cyprus
• Denmark
• Finland
• France
• Germany
• Greece
• India

• Indonesia
• Italy
• Japan
• Korea
• Luxembourg
• Malaysia
• Malta
• Mauritius
• Mexico
• Netherlands
• Norway
• Pakistan
• Peru
• Philippines
• Poland

• 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
• First Secretary (Economic Commercial)

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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
• - 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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INDIAS 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
• 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
• The economy has grown from around 6 between
  1992-2002 to 9.6 in 2006-07 with full
  macroeconomic stability
• Poverty reduced by 6 every year since 1991
• (Per capita income USD 797 at current prices in
  2006-07)
• 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)
• 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

• 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
• Governments 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

• FDI procedures simplified
• Large workforce that is English-speaking, 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

• AUTO COMPONENTS During 2006-07, the Indian
  automobile industry produced over 2.06 million
  4-wheelers over 9 million
• 2 3-wheelers .
• 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.
• Two French companies in India Filtrauto (auto
  equipment) Ateq (auto control)

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SCOPE AREAS FOR FRENCH COMPANIES

• 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.
• 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).
• Annual growth 35-40 for the last 3 years.
• An Ernst and Young survey ranks India 3rd among 5
  emerging biotech leaders in the Asia-Pacifi
  region.
• India the worlds largest vaccine producer.
• Opportunity for new investments is estimated to
  be in the USD 1.5-2 billion range.
• Ex Avasthagen, a small RD company in
  biopharmaceuticals innovation today, it is
  valued at 200 million with investors like
  Danone, Nestlé, Cipla, Limagrain, BioMérieux,
  etc.

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SCOPE AREAS FOR FRENCH COMPANIES

• PHARMACEUTICALS India ranks 4th in the world in
  terms of production by volume, accounting for 8
  of the world production.
• India produces 20-24 of the worlds generic
  drugs (in terms of volume).
• The industry is worth USD 6 billion, growing at
  over 13 per year.
• McKinsey study (2007) The industry has the
  potential to reach USD 25 billion by 2010 with
  its current growth rate.
• Indian companies supply almost all the countrys
  demand for formulations nearly 70 of demand
  for bulk drugs, many in the SME sector.
• The potential is large both in the domestic
  markets and for exports.

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SCOPE AREAS FOR FRENCH COMPANIES

• 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

• SCIENCE TECHNOLOGY With the 3rd largest
  available scientific manpower in the world, the
  Indian science technology industry has been
  growing well above world average.
• 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 worlds
  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.
• 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 worlds 4th
  largest wind power user Suzlon Energy is the 6th
  largest in the world the largest in Asia India
  has the worlds 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).
• Civil Nuclear Energy Opportunities in many
  technical fields laser accoustic microscopes,
  spectrometers, etc. for use in this field.

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INDO-FRENCH RELATIONS
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INDO-FRENCH RELATIONS

• India-France bilateral relations have been marked
  by political understanding growing interaction
  at the highest levels.
• In recent years, economic commercial linkages
  have become more important.
• Cultural cooperation has intensified deepend
  Lille 3000 in 2006-07 was a 4-month long
  cultural festival showcasing Indias cultural
  diversity. From April to July 2007, an exhibition
  showcasing ancient artefacts culture of India
  was held at the Grand Palais (Paris).
• 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

• 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
• 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

• 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.
• Bilateral trade comprises 0.4 of Frances global
  trade 1.5 of Indias global trade.
• Bilateral commercial trade between May.,
  07-April., 08 6.29 billion
• French imports for the same period 3.08
  billion
• French exports for the same period 3.21
  billion
• During President Nicolas Sarkozys 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
• Refined petroleum products
• Underwear other wearing apparel
• Apparel accessories
• Textile articles
• Basic organic chemicals

• 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

• 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.
• These enterprises are mainly situated in New
  Delhi its region (31), Mumbai Pune (26),
  Bangalore (15) Chennai (10).
• They globally recruit more than 40 000 persons.
• 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, LOréal,
  GDF, Total, Danone, Air Liquide, Essilor
  International, etc.

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CONTACT 15, rue Alfred Dehodencq 75016 -
Paris Tel. [phone], 42 or 45 Fax 01 45
20 80 19 E-mail inde.com_at_wanadoo.fr or
indefrance_at_wanadoo.fr 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 TD 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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T a x a n d R e g u l a t o r y
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INVESTING IN INDIA

• June 25, 2008

Mukesh Butani BMR Advisors
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CONCEPT OF PE
PE
Physical (Office or place of management etc)
PE not formed
PE not formed
Agency
Preparatory and Auxiliary Activity
Acting as communication channel
Storage or display of goods
Purchase of goods/merchandise
Preparatory and auxiliary activity of a dependent
agent
Independent Agent
Construction site for short duration
PE is formed if
PE is formed if
Activity is income generating i.e. concluding
contracts, securing contracts
Services to associated group enterprises
Dependent Agent

• Concluding Contracts
• Negotiating price
• - Repeat sales

Securing orders -After sales services
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TAXATION OF FOREIGN ENTERPRISE
Under the domestic laws
Under the DTAA

• 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

• 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

DTAA overrides domestic law
Tax rates for various income streams are
mentioned in subsequent slide
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TAX RATES AT A GLANCE
Plus surcharge 10 - domestic company, 2.5 -
foreign company and education cess of 3, if
rates as per domestic law are applied
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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

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TRANSFER PRICING LEGISLATION - OVERVIEW
Economic analysis Computation of arms length
price
Factors affecting transfer price
Audit / litigation procedures
Functional analysis- Detailed description of
transaction
Double taxation avoidance clauses
Methods to compute arms length price
TP Regulations - Features
Dispute resolution mechanisms
Arms length principle
Overview of the Transfer Pricing Legislation
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RECENT TRANSFER PRICING DEVELOPMENTS

• Aggressive attitude of Revenue
• 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)

Approximate figures
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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

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C h a l l e n g e U s
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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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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
• French CFC rule
• Theoretically applicable in case of Indian tax
  holiday
• Exception if industrial or commercial activity
  carried out in India

• Two major issues to be addressed
• Capital gain taxation upon the disposal of
  Indian shares
• Indian Dividend Distribution 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 ?
• Indian DDT may be avoided through a buy-back of
  shares

FrenchCo
Dividends
WHTMauritius 0 Cyprus 0Singapore 0
100
IntermediateholdingMauritiusCyprusSingapore
Buy-back of shares
gt50
WHT 0
Indian Target
DDT 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 TD
• Ludovic Both, CFO, ALOE PRIVATE EQUITY
• Mukesh Butani, Founding partner, BMR Associates
  
• Frédéric Donnedieu de Vabres, Chairman, TAXAND