In our “Case Study” series we will be posting articles about specific questions or problems that we have been approached with and our solution process. This post deals with a specific international tax question posed by a client.
From an international tax and transfer pricing perspective, where should an Indian subsidiary of a European group have its immediate parent? Assuming the decision is neutral from a group perspective, what is better from an Indian transfer pricing and tax perspective? In this case the options were Greece and Cyprus.
International tax, transfer pricing and operational implications of having a holding company in Greece or Cyprus
AMA’s analysis involved several issues, from overarching considerations (perception of each country among Indian regulators and transfer pricing regulations applicable) to the minutiae (the concept of permanent establishment, withholding tax rates, double-tax avoidance agreements with Greece and Cyprus, etc.).
To begin with, our work involved extensive analysis of the international tax regulations (the Indian, Greek and Cypriot tax systems) and Double-Tax Avoidance Agreements. Our work also required a review of current transactions in place and their treatment for transfer pricing.
We further studied the documentation requirements for transactions with both countries. We also worked on structuring operational arrangements such as cost allocation between parent and subsidiary, import of goods, reimbursement of costs, etc.
Finally, we did a scenario analysis using hypothetical numbers. The purpose was to assess the difference between the two European jurisdictions, both for the payer and the payee.
(This case happens to deal with Greece and Cyprus but the approach would be broadly similar for other countries.)
We presented the conclusions of our work to the client in a report covering our methods, analysis, hypothetical calculations and a recommendation. The results tied together the various regulations in India and their combined impact on our recommendation.
Two years on
The client chose to adopt our recommendation and has remained satisfied with our recommendation. AMA has thereafter continued to assist the client with advisory services in transfer pricing, domestic and international tax matters.
For more information on our tax advisory services, please see: Direct Tax Advisory.