Whether M&A is a Tax
Planning Tool
Assocham Conference May 2016
Himanshu Sinha
May 27 2016
The contents of this document are confidential
Most M&As are not tax driven
• Driven by commercial objectives generally – choice of
mechanism/vehicle is driven by tax efficiency
• Very seldom M&A is done purely for tax objectives –
Inversion of US companies to reduce the effective tax
rate is an example
Recent instances: Eaton Corporation to Ireland, 2012,
Actavis to Ireland, 2013, Liberty Global to the United Kingdom,
2013, Burger King to Canada, 2014, Medtronic to Ireland, 2015,
Mylan to the Netherlands, 2015, Arris Group to the UK (2016)
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Common objectives of Tax Driven M&As
• Reducing overall tax burden of the business
income – ETR reduction of the group
• Avoiding payment of capital gains tax on sale
of business/assets
• Avoiding payment of tax on migration of
assets or people or capital within the group
with a view to reduce future ETR
• Avoiding payment of DDT on accumulated
profits
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Main drivers of use of M&A as tax planning tools
• Capital gains tax free/neutral treatments of mergers,
demergers, conversions and parent-subsidiary
transfers
• Unique tax treatment of slump sale and asset sales
• Retrospectivity of mergers
• Section 56 consideration of gift of shares
• Avoiding implications of transfer pricing law of ALP
• Avoiding VAT on sale of assets – itemized sale
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Common examples of use of M&A as tax planning
tools
• Use of Tax treaties – like Mauritius, Singapore etc.
Migration from places like US to Mauritius to get the
benefit from grandfathering provision
• Buy-back of shares for avoiding DDT – characterizing
dividend as capital gains – introduction of Buy-back tax
• Use of court sanctioned schemes for reorganization to
avoid buy back tax – now plugged by the Finance Act,
2016
• Characterizing other types of income as CG – e.g. interest
by issuing hybrid instruments which are debt instruments
but structured as equity or vice-versa
• Avoiding Section 56 tax on gift of shares by carrying out a
slump sale of the business
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Income-tax dept’s role in a court scheme
Role of the income tax dept in the court process during a
court approved merger or demerger or capital reduction
or buy-back of shares has often been to object to the
scheme
Courts’ approach in general has been to approve the
scheme while retaining the right of the tax dept to impose
tax during assessment proceedings
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Looking Forward
 GAAR – post April 1, 2017
 Impact of BEPS recommendations of OECD
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Thank You
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Tax M&A contact at Trilegal
Himanshu Sinha
Himanshu is Partner at Trilegal and heads the Tax practice. He has advised
clients on entire range of direct tax matters including International Tax, Transfer
Pricing and Tax Controversies. He has more than eighteen years of experience
in Direct Taxes. He has represented large MNC clients before the Tax Tribunal,
Authority for Advance Rulings and the higher courts with reported judgments to
his credit.
He has handled transactions involving complex tax issues, both cross-border
and domestic. He has negotiated Advance Pricing Agreements with the
Government on behalf of well-known global companies.
Partner
T +91 11 4259 9200
E [email protected]
Prior to joining Trilegal, he worked with a Big Four accounting firm. Himanshu
spent more than a decade in the Indian Revenue Service (IRS) where he worked
as Assistant Commissioner of Income Tax, Deputy Director (Investigation),
Deputy Director (International Tax) and Transfer Pricing Officer.
He is currently serving as a member of one of the focus groups of the Tax
Administration Reform Commission set up by the Ministry of Finance, Govt. of
India. He has been named as one of the leading Tax Controversy leaders of
India by International Tax Review in 2014.
Himanshu is an alumnus of Campus Law Centre, Delhi and Harvard Law School.
He is a member of Bar Council of Delhi, India.
The contents of this document are confidential
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