Digital payments major PhonePe had in October last year moved its domicile from Singapore to India, and its CEO Sameer Nigam recently said that since then, about 20 unicorns and their investors have enquired about the process and are actively looking to move back to India.
To enable reverse flipping, the Economic Survey called for simplifying tax structure to reduce multiple layers of tax and tax litigations, besides simplifying procedures for capital flows with lesser restrictions on inflow and outflow of capital.
The survey said there were several inherent challenges faced by startups, including fundraising and revenue generation struggles, lack of easy access to supportive infrastructure, and “wading through the regulatory environment and tax structures”.
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“It has also been observed that many Indian companies have been getting headquartered overseas, especially in destinations with favourable legal environments and taxation policies,” it said. “The technical jargon for this may be identified as ‘flipping’, which is the process of transferring the entire ownership of an Indian company to an overseas entity, accompanied by a transfer of all IP (intellectual property) and all data hitherto owned by the Indian company.”
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This, the survey added, “effectively transforms an Indian company into a 100% subsidiary of a foreign entity, with the founders and investors retaining the same ownership via the foreign entity, having swapped all shares.”Of late, however, with relatively easy access to capital, changes in rules regarding round tripping, and the growing maturity of India’s capital markets, companies are exploring reverse flipping, it said.
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“The flipping phenomenon mentioned above reflects startups venturing out for short-term gains in the dynamic, uncertain geopolitical world,” the survey said. “However, the flip can be reversed with collective action by the government-related regulatory bodies and other stakeholders. With solution-oriented strategies, startups will continue to be the messengers of India’s entrepreneurial dynamism,” it said.
PhonePe’s Nigam recently flagged the challenges faced by Indian startups in moving their base back to India, saying the firm paid almost Rs 8,000 crore in taxes “just to allow us to come back to India”.
He listed capital gains tax paid by shareholders and investors, reset of the vesting period for employee stock ownership plans (Esops), and the inability to offset losses as some of the key challenges it faced.