The client was facing problems winding up their operations and eventually winding down their presence in India. There were several issues that were hindering the winding up process like multiple registrations, open litigations, numerous consultants, etc.

Nexdigm (SKP) drafted a plan of action for the open litigation cases after deliberations with the client. We organized meetings with the client’s tax consultants to understand the issues under litigations to examine the probability of success for open items.

We also successfully convinced the tax consultant to work on a fixed fee model as against a time based model, and subsequently secured a significant reduction in professional fees and provided better clarity on the costs to handle protracted litigation.

Since most of the open litigations were around transfer pricing adjustments, we suggested that the client opt ‘Safe Harbour Rules’ under the transfer pricing regulations to avoid litigation exposure in the future.

The client was extremely pleased with our solution oriented approach, and hence, Nexdigm (SKP) was retained as their preferred partner for almost every routine and non-routine aspect of the project.

The client supplied software to various telecom businesses all over the world. They had set up an Indian subsidiary and was assisting with lending necessary human resources and recovering only the cost and overheads. The client needed to defend their tax position of software payments not being taxable in India before the Mumbai Tax Tribunal.

After detailed fact and legal research, we were able to counter every claim made by the Indian tax authorities.

At the Tribunal, we argued that the software sold was a standard copyrighted product. We also brought to the notice of the judges, by relying on several clauses of the agreement, that our client would remain the owner of intellectual property rights. Along with the Tax Counsel, we examined the additional software supply agreement to prove that the same was only for the supply of additional software, and the terms and conditions for the supply of software would remain the same as provided in the original agreement.

We were successful in convincing the judges that although the agreement mentions the source code and signing an escrow agreement, no escrow agreement was signed and neither the source code was transferred.

We also argued that since the term ‘computer software’ is not used in the India-Israel Tax Treaty, there is no intention to cover software payments. We also highlighted various other tax treaties (like Namibia and Russia) where computer software is specifically covered under the treaty. We were in a position to argue that there was no change in the facts from earlier years, and hence the order’s of earlier years should be followed.

On the issue of services provided by the company to the Indian subsidiary, the tax officer contended that the Indian subsidiary acted on behalf of the company in India. The Indian subsidiary is completely dependent on the company to earn its revenue in India. Accordingly, the tax officer concluded that Indian subsidiary should be considered as Dependent Agent PE of the company.

We argued that the Indian subsidiary is an independent entity earning income in India. It was also demonstrated that the agreements entered by the Indian subsidiary was on a principal-to-principal basis.

Furthermore, in earlier years, the Indian tax authorities had not raised an issue regarding a PE, and hence the said argument cannot be taken in 6th year of the transaction (i.e. principle of consistency should be followed). Furthermore, it was also argued that none of the conditions of a Dependent Agent PE were discussed by the tax officer in its order. Based on these arguments, we were able to convince the judges that there is no PE in India.

The tax authorities had also done a protective assessment, wherein if it was held that a company does not have a PE in India, then the payments received for rendition of services was taxable as Fees for Technical Services (FTS) as it made available technical, knowledge, skills, etc. to its Indian subsidiary.

Before the Tribunal, it was argued that payments received by the company were on a cost-to-cost basis without any income element and hence not taxable in India at all as it is reimbursement of expense.

As an alternative argument, it was argued that even where payments are considered to be technical in nature, the same should not be taxable in India as it did not result in the transfer of knowledge to the recipient of the services according to the India-Canada Double Tax Avoidance Agreement (DTAA) read with protocol to the India-Israel DTAA.

It was bought to the notice of judges that the India-Israel DTAA does not provide for the ‘make available’ clause in the agreement. We took the help of the protocol and the most favoured nation clause, andtook support of the India-Canada DTAA to bring out the make-available clause. We also relied on earlier year orders and other judicial precedents to strengthen the case.

After detailed fact and legal research, Nexdigm (SKP) was able to counter every claim made by the Indian tax authorities. At the Tribunal, we argued that the software sold was a standard copyrighted product. We also brought to the notice of the judges, by relying on several clauses of the agreement, that our client would remain the owner of intellectual property rights.

We thoroughly examined the Double Taxation Avoidance Agreements between India and Israel to ensure our findings were in line with the international tax treaties.

Nexdigm (SKP) obtained a favorable order from the Mumbai Tax Tribunal on all the grounds of the appeal. The ruling has had a far-reaching impact on all the subsequent years by becoming a binding precedent, resulting in substantial tax savings for the client on a yearly basis.

The client required assistance in the acquisition of a public limited company in India that focused on manufacturing process control instruments.

After understanding the challenges of the engagement, we structured our approach to ensure that requirements of all parties were met. First, we undertook financial and tax due diligence to understand the potential risks in the acquisition and identified steps to be taken for minimizing the potential risks. Next, we recommended transferring 90.01% of the shares to the buyer as minority shareholders holding 10% shares or more have the right to file claims against the company for oppression and mismanagement.

Our solution helped both parties achieve their desired objective in terms of a tax efficient structure, safeguarding the interest of both buyers and sellers by creating an escrow arrangement and efficiently carving out non-core assets of the promoters. In addition, we also supported the client in the smooth implementation of the structure.

The client, a leading Information Technology (IT) solutions company, headquartered in the US wanted to set up its operations in a Special Economic Zone (SEZ) in India. They needed to hire employees, set up the requisite infrastructure, seek regulatory approvals for operating in the SEZ, set up systems and processes around accounting and payroll, manage recurring tax compliances, etc.

Challenges for successfully setting up their company in India included hiring employees, setting up requisite infrastructure, seeking regulatory approvals for operating in the SEZ, setting up of systems and processes around accounting and payroll, recurring tax compliances, etc. The company wanted to focus on its core processes and operations and needed a local partner to assist them in setting up the processes around accounting and compliance management.

We worked closely with the senior management of the company in the US and India to understand the exact requirements of the group for their new company in India. This gave us a clear perspective of the work involved, its criticality and the order in which each of the activities had to be approached.

Setting up the accounting system and processes:

The company started its operations with 100+ employees in first few month’s. As such, robust systems were required to be established right at the outset. We assisted the company with setting up of systems relating to accounting and relevant parts of Human Resources (HR), administration and operations that impact accounting. We assisted the company with:

• Designing the formats and process flows for data capturing, reporting and documentation to ensure that data is captured at the source itself.
• Since the company provided IT solutions, we anticipated the challenges that the company would face for recovering employee advances, salaries, etc. due to the high turnover involved in this industry. Accordingly, we advised the company on the process and documentation to be maintained for such transactions.
• We assisted in designing the process flow for disbursing vendor payments, salaries, employee advances, tax payments, receipts, etc. The company used different bank accounts for these payouts, and it was critical that bank reconciliation, problem resolution and detailed accounting happens on time and without any error to ensure business continuity.

Setting up the payroll system

The employee cost is one of the biggest cost drivers in an IT solutions company. As such, it was essential that payroll process is setup with precaution. We played a pivotal role in facilitating a payroll process system between the company and the payroll vendor. We assisted the company in the following areas in the initial set-up phase:

• Suggesting adequate checks and balances in the payroll process
• We coordinated with the overseas management and payroll service provider every month till the payroll process was stabilised. This was done to ensure all payroll queries were resolved and employees were paid on time
• We assisted the company’s overseas management to familiarise them with the Indian payroll nuances and calculations from time to time
• We independently reviewed payroll reports provided by the payroll vendor and company policies for initial few months by validating it with inputs to ensure they were compliant

We continue to support the company on various matters in areas of advisory, compliance and litigation support services (including indirect taxation, direct tax and transfer pricing). The services include on-going compliances, obtaining refunds, handling of tax scrutiny and assessment, monthly management reports, annual financial statements as per the Indian Generally Accepted Accounting Principles (GAAP) and audit liaison.

Nexdigm (SKP) worked closely with the senior management of the company in the US and India to understand the exact requirements of the group for their new company in India.

We initially helped design the formats and process flows for data capturing, reporting and documentation to ensure that data is captured at the source itself. We assisted in designing the process flow for disbursing vendor payments, salaries, employee advances, tax payments, receipts, etc.

Nexdigm (SKP) also played a pivotal role in facilitating a payroll process system between the company and the payroll vendor

Our support to the company in the initial phase enabled them to setup robust processes around critical areas like accounting, compliance management and payroll function for the company in an outsourced environment.

The client’s contract management process was unable to keep pace with its dynamic business model which was fueled by inorganic growth. The client needed support for ongoing contract management, including review and administration, and support during migration to a new contract management platform.

We partnered with the client to address the client’s contract management needs, which involved two types of engagement:

• On-going contract management support, including review and administration
• Support for migration to a new contract management platform

Under the on-going contract review and administration services (for North America and EMEA) we:

• Defined the size and structure of the SKPcontract management team to provide contract review and administrative support
• Created playbooks with contract review guidelines and fall-back language for different types of agreements and provisions
• Created a standard multi-party NDA template
• Prepared guidelines to capture meta-data
• Recommended a process to link child agreements with relevant master agreements
• Recommended a standard process for storing wet-signed contracts.

Under the support for migration to a new contract management platform, we:

• Conducted a User Acceptance Testing and suggested improvements to meet the client’s requirements
• Provided user training and hyper-care support for the rollout of the new platform
• Prepared user guides and manuals

The centralized contract review team of Nexdigm (SKP) helped reduce turnaround times for high volume contracts with low to medium complexity. The team managed contract administration, which helped eliminate inconsistencies and inaccuracies.

We helped implement and manage a contract management process, including contract review guidelines, templates for certain contract types, extraction guidelines for metadata, and contract archival. The new process helped bring structure, standardization, and method to the client’s contract lifecycle management.