Navigating Related Party & Beneficial Ownership Implications Across Corporate, Tax & Governance Laws

Episode Duration:
75 minutes

Episode Background:

Recently, in order to prevent opportunistic mergers and acquisitions of Indian companies by foreign companies [given the falling prices of COVID-19-hit India Inc], the Government while revising the country’s FDI regulations stated that, “an entity of a country, which shares a land border with India or where the beneficial owner of an investment into India is situated in or is a citizen of any such country, can invest only under the government route." In the light of this backdrop, while the question of who may be a “beneficial owner” has been left unanswered by the government, it becomes extremely vital for one to understand the concept & impact of “beneficial ownership” across various laws & governance standards.

In India, the concept of beneficial ownership finds its roots in Sections 89-90 of the Companies Act, 2013 ("Companies Act") which requires identification of individuals holding ‘significant beneficial ownership’ (‘SBO’) to make declarations as per the prescribed rules. Moreover, as far as taxation laws are concerned, the lifting of corporate veil to identify the beneficial owner, even under the Income Tax Act, is not new. Likewise, the “look through” principle has also been recognized under SEBI regulations, Insolvency and Bankruptcy Code, 2016, Foreign Exchange Management Act, 1999 etc. From an international tax perspective, India follows the UN Model approach and, as a source state usually has the right to tax passive incomes such as royalties, FTS and dividends under the bilaterally negotiated DTAAs, most of the DTAAs provide that such passive incomes are taxed in the hands of the non-resident, being the beneficial owner of the income (a term which is neither defined under the IT Act nor under DTAAs).

What will the episode cover?

In this special episode, Advocate Rohan Shah has elaborately discussed and decoded the, (i) new concept of “beneficial ownership”, (ii) concept & consequences of related parties and Associated Enterprises [AEs], particularly w.r.t transfer pricing, customs, valuation GST, Companies Act, reporting and governance laws & (iii) impact of the aforesaid terms on stakeholders, both historically & in terms of their role and relevance respectively.