Professional Documents
Culture Documents
Franchising
and Leasing
…continued
Figure 3-2
Case Study
Business reorganisations
Leasing transactions
Business Accounting
Dynamics treatment
Cross Border
Transactions
Legal & regulatory Tax regimes &
framework treaties
Identifying and
delivering synergies
1 3
Income flows and Financing
their taxability options
Cross border
transactions
6 4
Exit considerations Debt Structuring
5 Cash repatriation
Key elements – arm’s length principle, documentation, overall tax costs and foreign tax credits
• Upto 20 MUSD – Minimum average maturity of 3 years, can have call / put option
Amount/
maturity • Over 20 MUSD to 500 MUSD – Minimum average maturity of 5 years
• ECBs outside the above limits/ maturity period need specific approval
• Investment in real sector (capital goods, new projects, modernization/ expansion of units)
End use • Investment in Infrastructure sector (power ,telecommunication, railways, roads, ports etc)
• Not to be utilized in capital market transactions, real estate, acquisition, working capital,
repayment of Rupee loans
Total cost • ECBs with minimum average maturity of 3-5 yrs: 200 bps above six month LIBOR
of debt • ECBs with minimum average maturity of more than 5 yrs: 350 bps above six month LIBOR
• ECBs upto 200 MUSD can be pre-paid without approval subject to compliance with minimum
Prepayment
average maturity period
Capital gains
US Corp Phase I
(conglomerate) • Asian strategy - acquire
control of Target Co
USA 100% • Foods business of F&P to
be consolidated with
Target Co
Mauritian
100%
Co* Phase II
Mauritius • Target Co sells trademark
43% to US Corp
• US Corp licenses
Target Co trademark to Target Co
(Foods) • US Corp receives royalty
India
Indian Partner
57%
Redefining strategy
Focus on core business
*Consider Singapore Foods &
Indian Partner - auto ancillary
jurisdiction Packaging
Auto ancillary Exit non-core business
The case study however discusses the implications arising under the
merger option, in detail in following slides
Mauritian
Co
License of trademark –
Target Co transfers
capital gains
Sale of trademark –
its Trademark (‘TM’) 51%
to Mauritian Co. Mauritius
royalty income
Subsequently
India
Mauritian Co
licenses TM back to
Target Co
Target Co
Dry lease
Risks include losses due to idle capacity, technological obsolescence & changing
economic conditions. Rewards include expectation of profitable operation over economic
life of asset and gain from appreciation in value or realisation of residual value
Lessee Lessee
• Lease rentals allowed as deduction • Resident - Lease rentals would be
• Depreciation allowed to lessor allowed to the lessee
• Depreciation would be allowed to the
lessor
• Section 10(15A) – exemption from tax
withholding extended