''The change is necessary to meet the goals of producing a fair, consistent and well-integrated tax structure that supports India's economic and social objectives,'' a FICCI Study, released here on Sunday, Oct 26 says. The Study will be presented at the two-day conference on 'International Tax Conference on Making Globalisation Work' on November 5-6. The chamber has noted that India has made significant improvements in the tax reforms but still many issues remain unaddressed, or new issues have arisen, particularly in the area of international taxation.
The study points out that India's tax and regulatory framework has significantly evolved to facilitate M &A activity and the existing framework compares well with the best standards around the globe.
However, ''all is not yet achieved and there is a long way to provide a more enabling environment for M &A in India,'' it said.
One of the most fundamental issues in a transaction involving the merger of an Indian company into a foreign company is whether the Companies Act, 1956 envisages such a transaction at all.
A careful reading of the Act would suggest that while the transferor company may or may not be registered under the Act, the transferee company has to be, which may lead to the conclusion that the intention of the law is to allow merger of a foreign company into an Indian company and it would not be possible to effect the merger of an Indian company into a foreign company.
In the emerging global scenario, it is important that the merger of Indian companies into the foreign companies should be legally recognised and made pari-passu with the foreign companies merging into Indian companies, particularly for taxation purposes, it said.
In a situation where an Indian company seeks to hive off a business undertaking into a subsidiary incorporated in a foreign country, transfer of capital assets by the holding company, that is, the Indian company to its subsidiary -- the foreign company-- would be liable to capital gains tax in India.
Income generated overseas could be repatriated to the Indian company in the form of interest, royalties, service or management fees, dividends, and capital gains, it said.
Such income would attract double taxation, which is mitigated or off-setted by tax treaties between the two countries.
Some of the jurisdictions commonly used for repatriating back to India are Mauritius, Cyprus, Singapore and the Netherlands, which have relatively better treaties with India.