Banks seek clarity on new rules about roundtripping in overseas investment

The provision on roundtripping in the new overseas investment rules launched by the federal government on Monday has led to some interpretational points over the proposed two-layer construction, prompting bankers to name a business assembly this week to debate the matter.

Under the new rules, Indian entities could make investments in overseas firms which have Indian subsidiaries offered the entire investment construction does not have greater than two layers.

Now, there are two interpretations about how the layers can be counted, consultants mentioned. For instance, suppose an Indian entity needs to take a position in a US-based firm that has a Singapore subsidiary and an Indian step-down subsidiary.

According to at least one interpretation, the Singapore entity is the primary layer and Indian firm would be the second layer. Therefore, the investment can go forward.

However, sure market members observe a extra conservative interpretation that the investment into the US firm can be counted as the primary layer and therefore the Singapore entity turns into second layer and Indian unit turns into the third layer.

If the second interpretation holds true and the US entity is unable to route its investments by way of a extra tax pleasant jurisdiction like Singapore or Netherlands, the entities might find yourself paying double taxation, consultants mentioned.