Nasscom Indian startups list directly: Nasscom wants government to let overseas Indian startups list directly

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India-focused startups incorporated overseas should be able to list on the domestic stock exchanges within the existing externalised structures, Indian industry body National Association of Software and Service Companies (Nasscom) has suggested as part of its Union Budget 2024-25 recommendations.
Out of 139 startups who participated in a survey conducted by Nasscom, approximately 16.5% of Indian-origin startups have externalised legal structures and would consider raising equity capital through public listing in India if the regulations are amended to allow for a direct listing, it said.

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Previously, the industry body had reached out to the markets regulator Securities and Exchange Board of India (Sebi) and the finance ministry seeking a viable framework for such listing. This is the first time it has been part of the Budget suggestions, said Ashish Aggarwal, head of public policy, Nasscom.

Existing rules permit only domestically incorporated firms from listing in India. The move could pave the way for reducing considerable tax liabilities for both the company and its investors in the event of ‘reverse flipping’ or moving registration to India.

India’s Union Budget 2024-25 will be presented on 1 February 2024.

For the Budget, it has recommended to “set up an expert task force, with participation from the relevant government departments, regulators, industry representatives and legal experts, to recommend a comprehensive set of measures to make direct listing an attractive option for Indian origin foreign start-ups to consider.”

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Also read | More startups India-bound, map ‘reverse flip’Transfer pricing

With the influx of global captive/capability centres (GCCs), the industry body also wants to improve ease of doing business and certainty on cross border taxation.

Nasscom wants the government to substantially reduce the time it takes to conclude the Advance Pricing Agreements (APAs), reduce safe harbour mark-ups for software development services and ITeS from 17 – 18% to 14 – 16% and make the safe harbour regime available for entities with international transactions of up to Rs 1,000 crore, up from the current Rs 200 crore.

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“If the 14-16% margin is satisfactory in regular assessment, the safe harbour rates should be reduced to make the regime attractive. Further concluding the APA should not take more than six months. Addressing these issues will promote growth of GCCs in India by removing uncertainty on tax assessments and reducing the paperwork,” Aggarwal said.

The reduction will enable more taxpayers to opt for safe harbour regime that currently applies only to taxpayers having eligible international transactions for software development/ITeS/contract R&D related to software development up to Rs 200 crore, Nasscom’s pre-budget note said amid ongoing headwinds faced by the export-oriented sectors.

GCCs typically are subsidiaries of their global companies overseas and they provide services to their parent firms. Now because of this, their transactions being cross border related party transactions, these come under the ambit of transfer pricing provisions in taxation.

Under the safe harbour regime, the prescribed profit margins are 17-18% for the services provided by GCCs. If the GCCs do not want to take safe harbour and do the regular assessment, Nasscom found that the industry is able to justify margins of 14-16%.

However, this entails going through the process of regular assessments every year. This is resource intensive for both the industry and the government and adds to the tax uncertainty for the industry.

While these margins were reduced in 2017 from 20%-22%, they are still seen as high compared to the cost-plus margins which are acceptable to tax authorities in the normal course of litigation.

India has over 58% share in global sourcing business and over 1,570 global delivery centres, the IT-BPM industry is well placed to serve the global value chains.

Further, APAs allows companies to enter into an advance bespoke understanding of their cross border transactions with the tax authorities. However, the process of concluding the APA, on an average, tends to run over four years, reducing its value substantially.

Considering the huge backlog of APA applications, the government should prescribe a fixed time limit for conclusion of APA applications, Nasscom’s pre-budget note added.

Safe harbour rules in the transfer pricing (TP) regime, are a set of rules or conditions, which relieve taxpayers from certain obligations, which are generally imposed on the taxpayers. The TP regulations were introduced in India in the year 2001, with an objective of preventing erosion of the Indian tax base. The Indian Transfer Pricing Regulations are part of Chapter X of the Income-tax (I-T) Act, 1961.

Among other recommendations, the body also wants the government to reduce TDS rate on royalty payments for software from 10% to 2%.

“For expediting disposal of appeals, the government should adopt binding timelines for disposal of appeals at various levels, instead of recommendatory timelines. Additionally, there is also a need to introduce relaxation from prosecution provisions for foreign companies who are already exempt from filing I-T return in India under S.115 of the Act,” it further said.



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