How Tesla is planning to route its India investment through the tax-friendly jurisdiction of the Netherlands.
Entering India
Last week, U.S. automaker Tesla finally entered India as it registered its Indian arm named Tesla Motors and Energy India with Registrar of Companies (RoC) Bangalore. The company has been registered as an unlisted private entity with a paid-up capital of ₹1 lakh.
This development came after Union Minister Nitin Gadkari last month had said Tesla is set to start its operations in the country in 2021 and would also look at setting up a manufacturing unit based on demand. Elon Musk had also been hinting to debut in the Indian market since the past year and two.
As per a report by The Economic Times, the company’s incorporation document reveals that its India unit has a parent company based in Amsterdam, Netherlands named Tesla Motors Amsterdam. The Netherlands-based company, Tesla Motors, is the subsidiary of California-based Tesla Inc. This means that Tesla will foray into India via its Netherlands subsidiary. Why? Thanks to the India-Dutch treaty.
Tax-friendly
The corporate structure to choose the tax-friendly jurisdiction of the Netherlands to invest in India is said to help Tesla get tax benefits related to capital gains and dividend payments.
Tax experts as quoted by the ET said that the rates for dividend taxes and withholding taxes are lower if an investor chooses to come via the Netherlands. The Netherlands has been one of the top choices for US-based companies since it offers favourable tax rates, and has a strong intellectual property (IP) protection framework, they added.
As per India’s agreement for the avoidance of double taxation and prevention of fiscal evasion with the Netherlands, investments by Dutch companies get an exemption from capital gains when shares in Indian companies are sold, subject to certain riders. The India-Netherlands treaty stands out because it exempts capital gains from tax where India shares are sold by the Dutch company to a non-Indian buyer.
Zooming out
In 2016, India made amendments to a similar treaty that it had with Mauritius and Singapore after it plugged the loopholes, and made the capital gains tax rates applicable from April 2019 on the sale of Indian companies’ shares by investors.
However, there were no changes made in the India Dutch treaty. Though, that doesn’t mean it will not happen in the future as there might be some possibilities that India may amend the bilateral tax treaty with the Netherlands, tracking the surge in investments through the country. Until then, foreign corporations may continue to favour this opportunity just how Tesla has done to route its investment in India.
Head to moneyguru’s Insight section to stay updated on all major financial news updates of the day!
