Latest Expert Exchange Queries
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
 
 
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Service Tax | Sales Tax | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Indirect Tax | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing
 
 
 
 
Popular Search: Central Excise rule to resale the machines to a new company :: ACCOUNTING STANDARDS :: articles on VAT and GST in India :: ARTICLES ON INPUT TAX CREDIT IN VAT :: TAX RATES - GOODS TAXABLE @ 4% :: VAT RATES :: ACCOUNTING STANDARD :: TDS :: VAT Audit :: due date for vat payment :: empanelment :: list of goods taxed at 4% :: cpt :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: form 3cd
 
 
« Mergers and Acquisitions »
 What is Triggering the Wave of Mergers & Acquisitions in the Indian Internet Space?
 Oil and gas mergers and acquisitions are finally making a comeback
  Mergers: Commission approves acquisition of St Jude Medical by Abbott Laboratories, subject to conditions
 Mergers and Acquisitions: What’s Happening in the OFS Industry?
 Mergers: Commission approves acquisition of St Jude Medical by Abbott Laboratories, subject to conditions
 Prediction: These 8 Companies Will Get Bought in 2017
 Third Quarter Results Show Continued Strength in Mergers and Acquisitions
 Mergers and Acquisitions Modelling 3 Day Course - 23.03.17 - Research and Markets
 Foiled cross-border mergers and acquisitions
 Mergers and Acquisitions: 15 Important Considerations for In-House Counsel
 U.S. mergers and acquisitions activity expected to remain steady in 2017: KPMG

Tax horrors keep insurers away from M&A deals in Indiaa
August, 11th 2015

Prime Minister Narendra Modi needs to offer much more than just his best intentions to clean up India’s whimsical tax regime to help convince insurers.

Companies from Allianz SE to American International Group Inc. (AIG) are avoiding offering tax-liability coverage in India’s cross-border mergers and acquisitions (M&A) market because of a relatively high risk of disputes. None of the 21 general insurers operating in the country provides cover for tax risks arising from M&A transactions.

“No one is comfortable offering that product in geographies without a stable tax regime,” said Sushant Sarin, senior vice-president for commercial lines and broking at Tata AIG General Insurance Co., the local unit of the New York-based insurer. “Demand for insurance cover on cross-border deals tax risks in India has been surging, though.”

More than a year after coming to power, Modi has failed to allay investor concerns over a law that allows authorities to make retrospective tax claims. Instead of repealing it, he promised to refrain from reviewing old deals, adding to the muddle as authorities face pressure to boost one of the world’s lowest tax collection rates.

Vodafone, Nokia

Tax indemnity insurance is purchased either by the buyer or seller involved in an acquisition, where a known tax issue has been identified during due diligence process. The insurer typically agrees to compensate for any additional taxes, interest or penalty that has to be paid by the insured in the transaction.

Cross-border deals involving overseas companies and their Indian units spark transfer pricing questions about how to value the transactions for tax purposes. Modi has blamed decisions by the previous government for some of the recent tussles.

Some of the companies embroiled in tax disputes with India’s finance ministry include Nokia OYJ, Vodafone Group Plc, Cairn India Ltd and Cadbury chocolate maker Mondelez International Inc. for total claims of about $10 billion.

In the Nokia case, tax spats forced the company to suspend operations at its factory in Chennai last year, with thousands of workers offered voluntary retirement.

Deals rise

The $3 billion case over capital gains from Vodafone’s 2007 acquisition of Hutchison Whampoa Ltd’s Indian business is going into international arbitration even after the Supreme Court ruled against the government’s claim in 2012. Cairn India has said its $3.3 billion dispute will deter overseas investment. Mondelez is contesting an excise duty claim.

The bad press may be deterring some companies from pursuing deals in India, said Jacob Mathew, managing director and co-founder of Mumbai-based investment bank MAPE Advisory Group Pvt. Ltd.

“Many transactions haven’t happened as tax indemnity insurance is not available in India,” he said. “Corporates who are new to India find this daunting.”

Still, mergers and acquisitions involving Indian companies have touched $48.4 billion this year, 11% more than the whole of 2014, according to data compiled by Bloomberg.

Even after Modi told investors on a trip to Germany in April that India is a “changed country” with a more “transparent, responsive and stable” regulatory framework, officials on the ground are often under pressure to pursue claims to shore up revenue.

‘No product’

Modi’s government has vowed to narrow the budget deficit to 3.9% of gross domestic product (GDP) in the year to 31 March 2016, with a projection of 16% increase in tax collections. India’s tax-to-GDP ratio was 10.8% in 2012, higher than only 12 of about 200 countries tracked by the World Bank.

“This is an issue investors have to deal with and hence makes deals more complicated to execute,” Ajeeth Narayan, country head for India at Investec Plc, which owns a bank and money manager in South Africa and the UK, said in an e-mail. “Then, there is the additional cost element for covering off this risk as well.”

Underwriting and pricing risk in a segment where the law changes retrospectively is a challenge, according to Tata AIG’s Sarin. Insurers offer the tax indemnity insurance in markets with stable tax regimes such as the US, UK and Singapore, he said.

“We have no such product in the Indian market and neither does anyone else to the best of my knowledge,” said Sasikumar Adidamu, Mumbai-based chief technical officer for non-motor insurance at Bajaj Allianz General Insurance, the local unit of the Munich-based insurer. Bloomberg

 
 
Home | About Us | Terms and Conditions | Contact Us
Copyright 2016 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Article Management Solutions System Article Management Software S

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions