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Jurisdiction of the National Company Law Tribunal in Corporate Restructurings: Protecting Tax Revenue as Public Interest
In India, the National Company Law Tribunal (“NCLT”) has, on several occasions, rejected or scrutinized schemes of corporate restructurings based on objections raised by the Income Tax Department (“ITD”). These objections often focus on whether the scheme is structured primarily to avoid taxes, taking advantage of set-off of losses or avoidance of tax liabilities by overvaluation of assets. This note discusses case law where the NCLT has taken into account tax matters and evaluated the impact of the General Anti Avoidance Rules (“GAAR”) as a matter of ‘public interest’, thus setting important precedents in Indian corporate jurisprudence.
Cross-Border Share Swaps: Amendments to Regulatory Framework
In order to simplify cross-border share swaps and address certain challenges under the existing regulatory framework, the Government of India has recently amended the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019. The amendment became effective on August 16, 2024. Previously, permissible share swaps were restricted to issue of equity instruments by an Indian entity to foreign residents in exchange for equity instruments of another Indian company. The amendment now allows secondary share swaps and exchanges of equity instruments for equity capital of foreign companies. However, certain ambiguities persist, such as limitations on swaps involving Indian resident individuals and lack of guidance on downstream investments by Foreign Owned Controlled Companies (“FOCCs”) using share swaps. Further, Indian tax laws do not grant tax neutrality to swap structures unless conducted via merger or demerger, making such transactions taxable unless covered by a tax treaty benefit.
Redefining Buy-back: Tax Implications under Finance Act (No. 2), 2024
Tax implications on share buy-backs have undergone significant changes pursuant to the amendments proposed to be introduced in accordance with the Finance Act (No. 2), 2024. In light of the amendments, companies and investors will need to reconsider their approach for exits and repatriation of surplus funds.
Direct Tax Vivad se Vishwas Scheme, 2024
The pendency of litigation under the Income-tax Act, 1961 has been rising due to two key factors: increasing number of appeals and slow disposal of such appeals. To address this growing backlog and to build on the success of the previous Vivad se Vishwas Scheme, 2020, the government has proposed the Direct Tax Vivad se Vishwas Scheme, 2024 (“VSV Scheme, 2024”). This note provides an overview of the VSV Scheme 2024.