The client, a label printing and label machine assembly manufacturing company, wanted to be a preferred supplier for its customers. They intended to do this through updation of their operational practices through well-accepted professional CSR platforms along with customized solutions, cutting edge technology, and an efficient supply chain.

These were the broad observations of the overall problems faced by the Client

• Involvement of the organization in both discrete and process manufacturing.
• Two separate business units handled different manufacturing processes, yet all functions
• including reporting, materials management, manufacturing assembly line, costing, and work-in-process had to be addressed on a common platform (ERP).
• Consolidated accounting and reporting to head office by way of interface and integration with global systems.
• Addressing and handling the complex tax structure and local regulations unique to the country.

The following were some of the challenges faced by the Client because of their existing IT structure.

• Multi-location manufacturing and centralized bookkeeping, compliance management, customer service and repairs, leading to the following other challenges:
  • Lack of accountability for activities undertaken
  • Loss of productivity due to duplication of work and manual record-keeping
  • Dependencies on individuals leading to time overruns
  • Pilferage due to lack of visibility on scrap and wastage
• Custom-based application software used in silos with accounts maintained in Tally.
• Use of Tally ERPby the finance department led to:
  • Data manipulation and inconsistency in uploaded data.
  • Lack of visibility on the integrity of the information uploaded
  • Lack of accountability on changes made to the data uploaded
• Lack of integration between the operations and finance departments led to:
  • Excessive procurement of raw material leading to cost overruns
  • Improper budget allocations
  • Lack of visibility on actual consumption of raw materials

The entire project was managed using an integrated cloud-based delivery platform to maintain consistency and to provide real-time updates to relevant key stakeholders.

The transition and transformation were handled in three phases:

Phase 1:
Partner to evaluate and recommend the appropriate ERP solution.

Phase 2:
Functional support and project management during ERP implementation.

Phase 3:
Hyper care post-ERP implementation.

Phase I

• Conducted detailed business/process understanding study to prepare Business Requirement Document ‘BRD’ and Detailed Process flow diagram ‘PFD.’
• Conducted Technical evaluation and feasibility study for the appropriate ERP solution for both industry-specific and off the shelf products.
• Designed a Business Process Mapping document with required ERP features.
• The team further provided the organization with a Return on Investment ‘ROI’ calculator (SKP proprietary tool) to help the organization gauge the return on the current investment made across the number of years.
• Recommended shortlisted ERP to the management.

Phase II

• A dedicated team member who was part of Phase 1 was involved as a functional consultant to ensure what was evaluated was implemented.
• The process involved efficient co-ordination with key stakeholders with for UAT, training, and sign off.

Phase III

• Training identified SPOCs within the processes to ensure each one is able to handle their area in the ERP
• Hyper care – based upon predefined success outcomes worked with individual teams across a period of six months to ensure that implemented ERP becomes a part of the organization transformation

• Most appropriate ERP with minimum customization could be identified and acquired by the company
• The implementation was project managed to adhere to pre-defined timelines with minimal or no delay in most of the processes
• The transition and transformation, due to this change, led the organization to work in an integrated manner with minimal disruption and duplication

• The organization was able to manage its financial and manufacturing activities along with other business activities in an integrated manner within six months of transition
• Cash flows and investments did not impact working capital as there was clarity and visibility for management to plan and budget the investment
• Pilferages and production losses were reduced as per management expectation.
• Increased investment in Research and Development ensured that the organization maintains its competitive edge over its peers due to production gains

The entire project was managed using an integrated cloud-based delivery platform to maintain consistency and to provide real-time updates to relevant key stakeholders. The transition and transformation were handled in three phases:

Phase 1:
Partner to evaluate and recommend the appropriate ERP solution.

Phase 2:
Functional support and project management during ERP implementation.

Phase 3:
Hyper care post-ERP implementation.

The client was able to manage its financial and manufacturing activities along with other business activities in an integrated manner within six months of transition. Pilferages and production losses were also minimized as per management expectation. The increased investment in Research and Development ensured that the organization maintained a competitive edge over its peers due to production gains

The client approached Nexdigm (SKP) to act as the domestic advisory team for providing support, expert advice and local knowledge to the Global Chief Restructuring Officer, his team in India and the group’s senior management. Our client expected support on two major aspects of the entire sale process of its Indian assets – the structuring of operational reporting performance of all Indian entities and transaction support during the sale process.

Supporting day-to-day operations during the restructuring

• Designing and maintenance of 13-week cash flow forecasts on a weekly basis and monthly working capital reports assessing the working capital situation of all Indian Entities.
• Designing and preparation of a dynamic operational business model for its only manufacturing entity (Revenue more than c.INR11,000 mn) in the entire group, in line with global reporting norms and changing the operational requirements based on market condition.
• Developing a cash monitoring system in consultation with senior management of the Indian entities and preparing a board pack for reporting to lender nominee director.
• Preparing consolidated financials statement for India group on quarterly basis and reporting on the operational performance to global lenders.
• Maintaining and monitoring complex intercompany transactions and preparing monthly reconciliation statement for more than 10 accounts between all / among the Indian entities and offshore group entities (Transaction value ranging c. INR 7,000 mn)
• Ongoing accounting and MIS support for lenders’ reporting purposes.

Transaction Support

Financial Analysis, Due Diligence & Negotiations

• Hand-holding the sale process in coordination with leading investment bankers and legal consultants -responding to bidders’ queries, data room management and management meetings
• Commercial inputs on term sheets and related loan documentation (total borrowings c. INR 7,600 mn)
• Defending assumptions in long term business plans and cash forecasts from significant global lender push-backs, I-bankers and buyer
• Assistance in preparation of information memorandum for the Indian group entities.
• Preparation of waterfall analysis
• Sensitivity analysis for cash flows of Indian trading and manufacturing subsidiaries (revenues c. INR 11,000 mn upwards)
• Vendor Due Diligence of Indian trading subsidiary with revenues upwards of c. INR 5,000 mn
• Assistance in deriving at the valuation for sale of all the Indian assets.
• Assisting COO and group chairman on the meetings with the buyers

Legal, Regulatory and Tax Support

• FEMA inputs on settlement mechanisms (invocation of guarantees, standby letters of credit, etc.) for offshore company backed loans
• Tax advisory on the transaction structure on the need basis
• Support on the collating the documents for getting the RBI approvals for novation of the foreign intercompany trade advances and repatriation of funds outside India.
• Preparation of liquidation models for its trading concern in India and refinance workings on a need basis
• Providing timely inputs on various domestic tax, international tax, transfer pricing, company law and FEMA aspects
• Acting as interim CFO for its only manufacturing company in the group for co-representing the company along with group chairman against the buyersconsultant for the purpose of due diligence (asset base of c. INR 20,000 mn)

We designed and prepared a dynamic operational business model for its only manufacturing entity in the entire group, in line with global reporting norms and changed the operational requirements based on market conditions. During the project, we maintained and monitored complex intercompany transactions and prepared the monthly reconciliation statement for more than 10 accounts between all Indian entities and offshore group entities

Nexdigm (SKP) devised and implemented cash controls to unlock funding of c.$13.5 mn from global lenders and suggested tax efficient modes of inward/outward repatriation under the waterfall analysis.

We also managed and collated information from various top level management officials from Indian entities and offshore companies. We extended co-operation to the group COO & Chairman as well as senior management officials in India for 4+ years on all sale opportunities and debt re-structuring proposals.

The client was engaged in the business of indenting chemicals where it earned commission income for carrying out indenting activities in India. The client wanted to analyze whether their POEM would be considered to be in India under the new POEM guidelines and also understand the PE risk in India.

Based on the facts of the case, we carried out an in depth PE and POEM analysis and provided a few mitigation strategies to our client.

Given that POEM regulation were recently introduced in India, we carried out a detailed research on old case laws and took the help of a few foreign case laws to identify whether the client has any POEM exposure in India. We also carried out a detailed analysis of the draft guidelines on POEM issued by the Indian tax authorities and provided detailed insights along with various do’s and don’ts for mitigating the POEM exposure.

Furthermore, we also advised the client on maintaining documentation to substantiate the fact that management decision are in fact taken outside India.

In respect of PE exposure in India, we conducted a research on various case laws and tax commentaries and provided a detailed opinion on Agency PE risk in India. We also suggested that in the given set of facts, it would be possible to argue that the Indian company is an independent agent as it is carrying out indenting activities for various customers and hence, Agency PE would not be triggered.

Based on our experience of handling similar cases, we provided various do’s and don’ts to mitigate the Dependent Agency PE (DAPE) risk in India. SKP also suggested that as a last resort, the company should be remunerated at arm’s length in order to avoid any additional attribution of profits even in the case an Agency PE is constituted. We also suggested that robust transfer pricing documentation should be maintained to substantiate the fact that the agent is remunerated at arm’s length.

Nexdigm (SKP) conducted research on various case laws and tax commentaries to provide a detailed opinion on Agency PE risk in India. We also suggested that in the specific scenario, it would be possible to argue that the Indian company is an independent agent as it is carrying out indenting activities for various customers and hence, Agency PE would not be triggered.

Based on our experience of handling similar cases, we provided various do’s and don’ts to mitigate the Dependent Agency PE (DAPE) risk in India. We also suggested that as a last resort, the company should be remunerated at arm’s length in order to avoid any additional attribution of profits even in case an Agency PE is constituted.

Our advice helped the client to have a clear and comprehensive understanding of POEM and PE exposure and the ways to minimize risks in India. It also helped the client in ensuring that appropriate documentations are in place which would eventually help in defending its case before the Indian tax authorities and avoid protracted litigation.

The client setup two subsidiaries in India which were engaged in marketing and sales promotion services for products in India. The client provided Information Technology (IT) support services to its Indian subsidiaries. In order to provide the IT support services, it provided certain IT assets or equipment (including software) to its subsidiaries and had charged the subsidiaries service fees for providing these services.

The client required advice on PE exposure in India on account of its IT assets or equipment in India.

Based on the facts of the case, our international tax experts carried out a detailed PE analysis and provided their views along with mitigation strategies.

On initial research, it appeared that the company had a fixed place PE exposure in India. However, we discovered that it was possible to argue that the company did not satisfy the disposal test as it did not have complete control over the assets or equipment.

Furthermore, we also observed that the assets or equipment were kept at various locations of the Indian subsidiaries. Accordingly, since the assets were located at multiple locations, the assets or equipment cannot be considered as a fixed place.

We advised the client that in order to completely mitigate the risk, it would be advisable that the asset or equipment be purchased directly by the Indian subsidiaries from third-party vendors instead of the parent company.

Our detailed advice helped the client to have a clear and comprehensive understanding of the PE exposure and the ways to minimize risks in India. The advice also helped the client in ensuring that appropriate documentation are in place which would eventually help in defending its case before the Indian tax authorities and avoid protracted litigation.

The client was concerned with internal employees receiving potential financial favors or kickbacks from third parties. They wanted to gather evidence, conduct an investigation and assess whether the employees had mismanaged financial information.

Nexdigm (SKP) conducted a thorough investigation of the employees involved and used disc imaging of employees’ laptops to gather evidence of malpractice. Following the investigation, the management initiated disciplinary actions on employees and enhanced their monitoring mechanism to address similar issues in future.

The company was looking for an implementation partner to address key issues such as revenue recognition and treatment of commissions, conceptualize an accounting system for Panchayats, examine clauses of a tripartite agreement and examine if any tax benefits can be availed.

In addition to the predefined scope, Nexdigm (SKP) developed an innovative and critical revenue model addressing the complexity of the arrangement between the three parties. The CWS systems bought by the Panchayats were financed by a bank and the company collected the service charge in a fiduciary capacity for the Panchayats. Nexdigm (SKP) helped the client in formulating the accounting policy of revenue on sale of the CWS and apportionment of the service charge among the three parties based on the tripartite agreement.

We addressed the client’s requirements and provided the following integrated support services:

• We designed the revenue model for the tripartite agreement ensuring it is compliant with the Accounting Standards and the erstwhile Schedule VI of the Companies Act, 1956.
• We reviewed the draft tripartite agreement and suggested the clauses for sharing of revenue and expenses among the company, NGO and Panchayats.
• We developed the internal control system for its operations and alsohelped the entity design the accounting system to capture information in line with the company’s agreements. The accounting system designed was robust and generated the Profit and Loss account for each CWS project (Panchayat).

Nexdigm (SKP)’s overall project support addressed all the required concerns and provided the company with a detailed assessment of the complex business, tax and regulatory landscape in India. Our analysis helped the client plan its entry strategy and set up the manufacturing facility accordingly.