Indian companies, especially startups which are increasingly being incorporated overseas, must watch out.
The Budget fine print says these companies will now be treated as Indian for tax purposes as long as their senior management is located in the country or business decisions are made here.
Pushed by foreign investors and regulatory and tax challenges, several Indian startups including e-commerce poster boy Flipkart had moved to overseas hubs like Singapore in recent years.
The latest Budget tweaked an earlier provision which said these companies will be treated as Indian residents only if their whole management or leadership was based in the country . Now, the test case has become where the `effective management' is based.
“This could technically impact companies that have moved abroad. But it may not be of immediate worry to e-commerce companies which are hardly making profits,“ Abhishek Goenka, partner, BMR Advisors, said.
The move was not surprising since it was envisaged in the Direct Taxes Code, and was seen as a broader drive against black money stashed away in offshore entities, he added.
Riaz Thingna, partner at Walker, Chandiok & Co LLP, said, “The latest move will concern companies getting incorporated in friendly jurisdictions only for attracting investments and for tax purposes. I think most e-commerce players have a lot more substance built into these foreign-domiciled entities.“
