Abstract
The Indian economy has seen steady and sustainable growth over the past decade, even though other countries have been cash-strapped and suffering from stagnation. Most of this development is due to the inflow of foreign direct investment (FDI) into India through cross-border mergers and acquisitions (M&A) and the unparalleled rise in the size and number of cross-border M&A in India with a favourable market climate for such trade. As a business strategy, cross-border M&As in India are rife with many legal complexities and issues. This paper documents the steady growth of cross-border M&A activity in India over the years and presents a comprehensive depiction of cross-border M&As, what the applicable laws are, what the legal issues and complexities involved are, and finally how they can be offset. The paper highlights the tax implications and issues involved in a cross-border M&A and how far the Income Tax Act, 1961 is attuned with the corporate laws in force to promote cross-border M&As in India. The paper concludes with a broader observation that cross-border M&As bring massive economic benefits and global stature to a growing economic superpower like India. For this reason, the business and legal environment should be made more conducive to cross-border M&A activity.
Highlights
The Indian economy has seen steady and sustainable growth over the past decade, even though other countries have been cash-strapped and suffering from stagnation
Payment by a resident to any non- This tax cost can be substantially resident, or any passive income in the minimized if read with Double Taxation Avoidance Agreements (DTAAs) proviform of interest, royalties, dividends, sions and applying the treaty beneetc., is chargeable as withholding fits to the transaction, promottax, which could act as a deterrent ing more cross-border mergers and acquisitions (M&A) to cross-border M&A activity
The increasing trends in cross-border M&As have been motivated by various strategic considerations which normally differ from purely domestic M&As
Summary
Whereas a “merger” is the “amalgam of two or more corporate entities into one, leading to accumulation of assets & liabilities of the distinct entities, and the organization. Strategic Motivations and Determinants of Cross-Border Mergers and Acquisitions. The main reasons and motives for domestic mergers as well as cross-border mergers can be found in (i) Neoclassical profit-maximization theory, which includes efficiency, strategy, and shareholder value as its core value; (ii) Principal-agent theory, which is based upon managerial efficiency and considerations; (iii) Internationalization theory in the OLI eclectic paradigm, which is based upon ownership, location advantages, and internalization of a firm; and (iv) Comparative ownership advantage theory, which is based upon five characteristics of accelerated internalization These theories explain the basis and reasons for corporate mergers.. It has been noticed that the largest share of foreign direct investment (FDI) takes the shape of cross-border mergers and acquisitions because low-cost firms find it profitable to merge with high-cost firms, since the monetary union would enhance goods competition across countries through a reduction in the trade cost, elimination of exchange rate risk, and improved price transparency..
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