Budget expectations quote by Mr. Vaibhav Gupta, Partner, Dhruva Advisors

Quote:

There are a number of aspects impacting M&A activities, that merit due consideration in this budget. Currently, the NCLT approval process for mergers and demergers under company law is time consuming. A scheme of arrangement takes almost 12 months and sometimes more for the approvals from various regulatory bodies to come through. The Government should consider making the approval process simpler and align it with global practices. At least in internal group restructuring matters, the approval process can be simplified. Similarly, on LLPs, while the LLP laws permit re-organisation of LLPs involving mergers or any other mode of arrangement, the tax laws do not recognize such a re-organisation as tax neutral. The Government should consider introducing provisions for tax neutral re-organisation of LLPs along the same lines as for amalgamation or demerger of companies.

In addition, provisions for permitting merger of an LLP with a company should also be introduced in the corporate laws to facilitate ease of doing business and encourage businesses being conducted through LLPs. Share swaps have increasingly been used in M&A transactions in India. One of the big deterrents of a share swap is the trigger of capital gains taxes even with no liquidity. The budget should address the tax neutrality of share swaps, ensuring that such transactions do not attract immediate tax liabilities and tax is deferred till the point of sale. This would facilitate smoother M&A deals and encourage the use of equity as a currency for acquisitions. Similarly, Indian shareholders often face uncertainty regarding the tax implications when foreign companies merge or restructure. The budget should provide much-needed clarity on this front, outlining the tax treatment of gains or losses at the shareholder level in such scenarios. This would eliminate ambiguities and align India’s tax regime with global standards, making cross-border transactions more transparent and predictable.

Further, this is required to bring the resident shareholders at par with non-resident shareholders who are not taxed when a foreign company merges into an Indian company or at the time of merger of Indian companies. Lastly, on GIFT City, the introduction of new provisions to facilitate growth of investments into the GIFT City and moves aimed at making the approval process single window have been welcomed by the global investors. As the GIFT City evolves into a globally recognized international financial centre, measures should be announced to facilitate a more open, transparent and vibrant capital flow framework in the GIFT City. Policy bottlenecks need to be promptly addressed and clarified, particularly on aspects surrounding the fund management regulations, single family office set-ups in the GIFT City.

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