Latest Expert Exchange Queries

GST Demo Service software link:
Username: demouser Password: demopass
Get your inventory and invoicing software GST Ready from Binarysoft
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) | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing | GST - Goods and Services Tax
Popular Search: form 3cd :: cpt :: list of goods taxed at 4% :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: Central Excise rule to resale the machines to a new company :: TAX RATES - GOODS TAXABLE @ 4% :: articles on VAT and GST in India :: VAT RATES :: empanelment :: due date for vat payment :: VAT Audit :: ACCOUNTING STANDARD :: ARTICLES ON INPUT TAX CREDIT IN VAT :: TDS :: ACCOUNTING STANDARDS
Direct Tax »
 How to save tax; amazing tips to make your money stay in your wallet Income tax returns (ITR) filing
 Want to save tax? Here are the best options
 Suggestion For Option To Assessee For Higher And Lower TDS/TCS For Optimization Of Tax Collection And Refunds
 CBDT to conduct nationwide review of tax collection for FY18 today
 Here are a few last-minute tax saving ideas Not planned taxes yet?
 Confessions of a fake CA exposes lacuna in e-filing of tax return
 Greetings from the income tax department
 Scrambling to scrounge proof of tax-saving investment
 5 tips to save your money Do not make this big income tax returns filing mistake
 I-T e-assessment: CBDT notifies new communication scheme
 Which income tax form to use; all you want to know in short and precise manner

Tax worries shape merger and acquisition negotiations between strategic buyers and seller
September, 25th 2015

At a time when the merger and acquisition space is heating up, many private equity and strategic buyers are asking for an indemnity bond or insurance from the seller to cover a tax demand that may emerge in the future.

Industry trackers say that although the number of deals in India has jumped in the last one year, a sudden tax demand emerging in future remains a huge concern. Many buyers, especially the private equity funds in the secondary deals, are asking the seller to give an indemnity bond, say industry experts.

"Parties spend a lot of time to get the structure of the deal correct from a legal and tax perspective to mitigate various risks and putting adequate protective clauses, including indemnity," said Vaishali Sharma, founder of Agram Legal Consultants. "The government, on its part, has issued many clarifications under various laws, including FDI, competition and Sebi's new takeover code, in last couple of years, which are now helping parties to frame their deal structures more effectively." Recently, Agram Legal advised Gammon Infrastructure Projects to sell six road and three power projects to BIF India Holdings for over Rs 560 crore.

While Indian insurance firms do not offer cover for tax liability in an M&A, some multinationals do. "Given the uncertainties involved in availability of tax treaty benefits to a seller involved in a deal, buyers and sellers often negotiate an extensive tax indemnity covenant in the transaction documentation.

At times, to substitute or supplement the tax indemnification, the parties, at a fiscal cost, obtain a tax indemnity insurance offered by certain foreign insurance companies to compensate for tax, interest and penalties that may be demanded. In that sense, from the buyers perspective, there is a third party that is seeking to insulate them from the future tax risks," said Sameer Gupta, Partner and FS Tax leader, EY.

The way it works is at the time of the deal, the seller and the buyer agree upon the potential tax liability that could arise. The seller would then take an insurance cover for that amount and pay the premium for next seven years. If the tax demand arises during that time then the insurance money is paid to the buyer. The Indian law permits the income tax department to raise a tax demand retrospectively for seven years.

"The insurance cover for the contingent liability is being brought in the discussions where foreign funds or entities are involved," said Sumchit Anand, managing director, Acquisory Consulting, an M&A advisory and asset management firm. "The insurance is now being brought up in almost all the discussions, however, it is tough negotiating that when an Indian firm is involved in the transaction, as the Indian regulations around the same are unclear," he said.

Industry trackers say an indemnity bond is given by the seller in most of the cases in the deal. The bond basically means that the seller would be responsible for any tax demand arising from the past years. Though lawyers claim that not even one indemnity bond has been dishonoured, many in the transaction side say only the bond might not be enough, especially in cases where the seller is exiting India investments altogether.

Home | About Us | Terms and Conditions | Contact Us
Copyright 2018 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Binarysoft Technologies - Our Experience

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