Indian MNCs in huddle over Biden tax | Economic Times

Mumbai: Many Indian companies with substantial presence in the US are considering tweaking their holding structures over concerns that the Biden administration could make changes to the corporate tax rates, increasing their tax outgo. Some of the large Indian entities and even many American multinationals that have substantial presence in India and other countries had tweaked shareholding patterns and customer contracts besides reducing management fees, interest and royalty payments to India from the US as part of their tax planning. These include companies such as TCS, Tata Motors, M&M, Infosys, Reliance Industries Limited, Accenture and Wipro.To be sure, Indian technology stocks were among the biggest losers Tuesday when the broader index climbed to a record, paced by gains in financial shares. Industry bellwethers such as Infosys and TCS lost 3%, with the index of tech stocks topping the list of sectoral losers. The main objective then was to reduce their tax outgo in the US under Base Erosion and Anti Abuse Tax (BEAT). BEAT essentially works like minimum alternate tax (MAT) in India. Under BEAT, tax on normal profit is about 20% and as low as 10% on adjusted profit, after disallowing payments like interest, management fees and royalties. Multinationals had tweaked their structures in 2018 to take advantage of BEAT. 79162674With Biden making announcements to increase corporate tax in the run up to the election, companies are exploring options they might have in case these changes are made. “Many Indian multinationals that operate in the US had altered some of their structures to deal with Base Erosion and Anti Abuse Tax (BEAT). Now that the new president could change the existing tax structures most of these companies will have to alter their business models, holding structures and will have to re-look at various strategies,” said Girish Vanvari, the founder of tax advisory firm, Transaction Square.Infosys and Tata Motors refused to comment, while RIL, TCS, M&M, Wipro and Accenture did not respond to an ETquestionnaire. Companies had tweaked their structures to suit the BEAT framework. Multinationals are now spooked about the administration seeking to increase the corporate taxes further. “In view of the specific proposal in the Biden- Harris campaign to levy an offshoring penalty surtax of 10% on the 28% corporation tax (proposed to be increased from 21%), those US multinational companies who offshore manufacture of goods as well as services could be staring at a 30.8 % tax on their profits. This will induce these companies to go back to the drawing board and rework the overall cost-benefit equation for these offshoring activities,” said Sudhir Kapadia, National Leader, Tax, EY India.The tax regime under Donald Trump had reduced the corporate tax rate to 21% and exceptions were carved out for companies shipping profits out and not creating jobs in the US. This meant that several multinationals that outsourced internal functions or manufacturing were impacted along with Indian multinationals that had subsidiaries in the US. The way “Biden offshoring penalty surtax” was advertised in the campaign is also set to impact several multinationals such as Accenture that have asubstantial base in India, say experts. Under BEAT regulations, any interest payment, management fee or royalty paid by the US entity to India should not exceed 30% of Ebitda. In most cases, interest payment, management fees and royalties are 80-90% of Ebitda for Indian multinationals.