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: ARTICLES ON INPUT TAX CREDIT IN VAT :: TAX RATES - GOODS TAXABLE @ 4% :: TDS :: list of goods taxed at 4% :: Central Excise rule to resale the machines to a new company :: due date for vat payment :: empanelment :: VAT Audit :: VAT RATES :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: ACCOUNTING STANDARDS :: cpt :: ACCOUNTING STANDARD :: articles on VAT and GST in India :: form 3cd
Direct Tax »
 CBDT issues final rules for taxing share buy back by companies
 CBDT issues final rules for taxing share-buyback
 The direct tax collections up to September, 2016 are at Rs. 3.27 lakh crore which is 8.95% more than the net collections for the corresponding period last year.
 IDS is tremendous success: CBDT chief Rani Singh Nair
 Submit monthly data of appeals disposed of: CBDT to officers
 Direct tax mop-up jumps 9 per cent in H1, indirect tax up 26 per cent
 Income tax department slams notice on five Mumbai-based exporters over offshore accounts
 Redress TDS mismatch grievance of taxpayers: CBDT
 Tax department changes rule for accommodating deductions for deferred spectrum payment
 Tax dept renotifies income computation, disclosure standards
 Sushil Chandra to be the next CBDT chief

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 2016 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