Coming Soon…India has entered into more than
88 Double Taxation Avoidance Agreements (“DTAAs” or “tax treaties”). A taxpayer
may be taxed either under domestic law provisions or the DTAA, whichever is
more beneficial. In order to avail benefits under the DTAA, a non-resident is
required to furnish a tax residency certificate (“TRC”) from the government of
which it is a resident in addition to satisfying the conditions prescribed
under the DTAA for applicability of the DTAA.
Further, the non-resident should
also file tax returns in India and furnish certain prescribed particulars in
Form 10F to the extent they are not contained in the TRC. For the purpose of
filing tax returns in India, the non-resident should obtain a tax ID in India
(called the permanent account number “PAN”). PAN is also required to be
obtained to claim the benefit of lower withholding tax rates, whether under
domestic law or under the DTAA.
The major countries with which it
has signed the DTAA are the US, the United Kingdom, the UAE, Canada, Australia,
Saudi Arabia, Singapore and New Zealand.
The modes for offshore debt funding have been limited to external commercial borrowings (“ECB”), non-convertible debentures (“NCD”), compulsorily convertible debentures and certain hybrid debt instruments. Each of these options have been subjected to regulatory restrictions in terms of eligible lenders, eligible borrowers, end-use restrictions, etc. Tightening of the NCD route (see hotline here), and the introduction of Rupee-denominated bonds under the ECB route (see hotlines here and here) have seen the ECB route gain more prominence as a preferred route, despite the challenges in the route for parties.
The Reserve Bank of India (“RBI”) has now revised the framework substantially relaxing the regime for ECBs. The changes have removed almost all restrictions on eligible lenders and eligible borrowers and have substantially expanded the scope of end-use restrictions.
The ECB framework has been governed by the regulations of the RBI framed under the Foreign Exchange Management Act, 1999 (“FEMA”), and the ‘Master Direction – External Commercial Borrowings, Trade Credit, Borrowing and Lending in Foreign Currency by Authorised Dealers and Persons other than Authorised Dealers’ (the “ECB Master Direction”). The RBI on January 16, 2019 has by way of a circular (“Circular”) revised the entire existing regulatory framework for ECBs in India.