IFSCAI expert committee report on onshoring the Indian Innovation to GIFT IFSC

IFSCAI has issued a Report of the Expert committee on ‘Onshoring the Indian Innovation to GIFT IFSC’ to incentivize the holding companies with subsidiaries in IFSC to shift back to India, by ensuring that the tax regime is at par or more favourable. It is therefore recommended to usher in a regime that, at a minimum, provides for:

1. Tax neutral relocation of an offshore holding company to IFSC holding company.
2. Tax neutrality to be ensured even for the investors / shareholders of the offshore holding company.
3. Provide grandfathering of existing investment of the offshore holding company and ensuring there is no additional tax on disposal of existing investments post relocation / migration Onshoring the Indian Innovation to GIFT IFSC.
4. The tax compliances for the investors / shareholders of the IFSC holding company must also be ensured to be at par as if the Offshore holding company had not relocated to GIFT IFSC
5. No lapse of losses of the Indian entities held by the offshore holding company due to relocation to GIFT IFSC
6. No lapse of India losses of Offshore holding company due to relocation to GIFT IFSC

The proposed modes through which the relocation of offshore holding company to India could occur are as follows:

1. Transfer of shares by offshore holding company to IFSC holding company: In this mode, the offshore
   holding company would transfer its shares to an IFSC-based holding company.
2. Merger of offshore holding company into IFSC holding company: This mode of relocation involves the merger of the offshore holding company into an IFSC-based holding company. This approach would result in the consolidation of the entities, streamlining their operations under the regulatory framework of the IFSC and ensuring tax neutrality during the merger process.
3. Swap of Shares by offshore holding company to IFSC holding company: This mode involved the shareholders and security holders to swap their holding in the offshore holding company for securities in the IFSC holding company while retaining the original cost and date of acquisition of the securities.
4. Re-domiciliation of offshore holding company to IFSC: In this mode, the offshore holding company re-domiciles itself to India, thereby becoming an Indian entity. This process allows the offshore holding company to maintain its existing legal identity while availing the benefits of being based in India, including access to the domestic market and various business incentives.
5. The scheme’s core principle is to ensure tax neutrality for all these relocation modes. This means that the relocation process should not trigger adverse tax consequences for the offshore holding companies and their stakeholders. By maintaining tax neutrality, the scheme aims to minimize any tax-related obstacles that might discourage offshore holding companies from relocating back to India.
6. Implementing a similar scheme for offshore holding companies as the one used for investment funds would create a level playing field
7. Conditions for tax neutrality for the offshore holding company and its investors / shareholder.