Cross-Border Tax Structuring & DTAA Advisory: The Process, Start to Finish
The mechanics of Cross-Border Tax Structuring & DTAA Advisory are what clients ask about once they have decided to proceed. The questions below are the ones raised most often in practice; the full scope of the service is on the Cross-Border Tax Structuring & DTAA Advisory page.
What is a DTAA — Double Taxation Avoidance Agreement — and how does it work for India?
A DTAA is a bilateral tax treaty between India and another country that allocates taxing rights over different categories of income — dividends, interest, royalties, capital gains, business profits, and salaries — between the two countries. India has DTAAs with over 90 countries. The treaty typically limits the withholding tax that the source country can levy on payments to residents of the other country (for example, reducing the standard 20% Indian withholding on royalties to a lower treaty rate), and determines whether the business is treated as having a Permanent Establishment (PE) in the source country. To claim DTAA benefits, the recipient must be a tax resident of the treaty country and must satisfy any Limitation of Benefits (LOB) or Principal Purpose Test (PPT) requirements in the applicable treaty.
In practice: DTAA provisions have become significantly more complex since India's ratification of the Multilateral Convention (MLI) in 2019. The MLI modifies India's existing DTAAs to include anti-abuse provisions (PPT) and anti-PE avoidance rules. A structure that worked under the old treaty text may not pass muster under the post-MLI version. Always verify the treaty position with current MLI-modified text.
What is Overseas Direct Investment (ODI) and what are my FEMA obligations when I invest abroad?
Overseas Direct Investment (ODI) is an Indian resident's investment in a foreign entity that the Overseas Investment Rules, 2022 define by reference to unlisted equity capital, a holding of 10% or more of the paid-up equity capital of a listed foreign entity, or investment with control; loans and guarantees to the foreign entity are treated as a financial commitment under the same Rules. Under the FEMA Overseas Investment Rules, 2022, ODI by an Indian resident individual or company must be registered on the FIRMS portal of the RBI before or simultaneously with the investment. Ongoing obligations include: Annual Performance Report (APR) by 31 December each year for each ODI entity, filing of any changes in the foreign entity's capital structure or ownership, and compliance with the additional conditions for investment in foreign financial-services entities (for example, an Indian entity that is not itself in financial services generally needs net profits in the preceding three financial years, and banking and insurance are treated separately; confirm whether RBI approval is needed for the case).
In practice: The FEMA Overseas Investment Rules were substantially revised in 2022. If your ODI was originally registered under the old rules (Form ODI), you need to verify whether it has been migrated to the FIRMS portal and whether your annual reporting is current. A gap here can leave a latent FEMA compliance issue.
What is the Annual Performance Report (APR) and what happens if I miss the filing?
The Annual Performance Report is an annual FEMA filing that every Indian entity or individual with an Overseas Direct Investment must submit to the RBI through the FIRMS portal by 31 December each year, covering the financial year ended 31 March. The APR includes the financial performance of each overseas entity (revenue, profit, net worth), the equity and loan balances, and details of dividends received. It must be certified by the statutory auditor of the overseas entity. If the APR is not filed by the due date, a Late Submission Fee may apply, and further ODI-related transactions may be held up until the default is regularised; confirm the current position with your AD bank.
In practice: APR is an easily missed cross-border FEMA obligation for Indian businesses with overseas subsidiaries. The key operational challenge: the APR requires audited financials of the overseas entity, which must be completed in time for the December filing. For UAE entities with a June or December financial year, this timing works well. For entities with a March year-end, the statutory audit must be completed well before December.
What is the Principal Purpose Test (PPT) and how does it affect treaty-based structures?
The Principal Purpose Test is an anti-avoidance rule that has been incorporated into India's tax treaties through the Multilateral Convention (MLI), which India ratified. Under the PPT, treaty benefits (reduced withholding rates, capital gains exemptions, business profit allocations) can be denied if one of the principal purposes of the arrangement or transaction was to obtain those benefits and granting those benefits would be contrary to the object and purpose of the treaty. In practice, this means that a holding company set up in a treaty jurisdiction primarily to access treaty benefits — with no real business activity, no employees, no management decisions taken in that jurisdiction — can be denied treaty benefits by the Indian income-tax authorities.
In practice: Post-MLI, the days of treaty shopping through shell holding companies are over. Every structure must have genuine commercial substance in the jurisdiction claiming treaty benefits: real office, real employees, board decisions actually taken in that jurisdiction, real risk-bearing, and a genuine business reason for being there beyond tax minimisation. We design substance-compliant structures from the outset — and review existing structures for PPT exposure.
What is GAAR — General Anti-Avoidance Rule — and can it undo my international structure?
GAAR (Chapter X-A, Sections 95–102, of the Income-tax Act 1961; the Income-tax Act 2025 applies with renumbered provisions from tax year 2026-27, so confirm the equivalent) empowers the Indian income-tax authority to deny tax benefits where an arrangement is an 'impermissible avoidance arrangement' — broadly, one entered into with the main purpose of obtaining a tax benefit that also has one of the specified tainted features, such as lacking commercial substance or not being for bona fide purposes. GAAR can override the terms of a tax treaty if the arrangement is found to be an impermissible avoidance arrangement. GAAR is applied only through a prescribed procedure with senior-level review — it is not routinely applied.
In practice: GAAR is the nuclear option — not routinely invoked — but its existence changes how structures must be designed and documented. Every international structure should be accompanied by a business purpose memo that sets out the genuine commercial rationale. The memo should reflect the reality of the business — not be a post-hoc rationalisation. We prepare this documentation as part of every structuring engagement.
What is an indirect transfer — and how does Section 9(1)(i) affect offshore share sales?
Section 9(1)(i) of the Indian Income-tax Act deems income to accrue or arise in India if it arises from the transfer of a capital asset situated in India. In 2012, this provision was retrospectively amended (and the retrospective element was later withdrawn), and the Finance Act 2015 then added a 'substantial value' test: shares or interest in a foreign entity are treated as deriving their value substantially from assets in India where, on the specified date, the Indian assets cross a prescribed monetary threshold and meet the 50% value test against all assets of the foreign company (directly or through a chain of subsidiaries). Only the portion attributable to Indian assets is taxed in India, and there are exclusions (for example for small shareholders), so confirm the conditions for the case. This is a 1961-Act provision; from tax year 2026-27 the Income-tax Act 2025 applies with renumbered sections, so confirm the equivalent.
In practice: This provision is particularly relevant when a UAE or Singapore holding company above Indian operations is being sold. Even though the shares being sold are shares of a UAE company, if a substantial part of the UAE company's value (the statutory test uses a 50% value test and a monetary threshold) comes from its Indian subsidiary, the gains attributable to the Indian assets can be taxable in India. Planning the exit structure well in advance — including the valuation of Indian vs non-Indian assets, the treaty applicability, and the transaction structure — is essential. Do not wait for the sale discussion to start thinking about this.
What is Country-by-Country Reporting (CbCR) and does it apply to me?
The CbCR reports revenue, profits, income tax paid and accrued, employees, stated capital, retained earnings, and tangible assets for each country where the group has operations. It is exchanged between tax authorities of different countries under the Multilateral Competent Authority Agreement (MCAA). In addition, a Master File (Form 3CEAA) is required if the Indian constituent entity of a qualifying international group meets the prescribed monetary thresholds. Form 3CEAA is a 1961-Act form; from tax year 2026-27 the Income-tax Act 2025 and Income-tax Rules 2026 apply with renumbered forms, so confirm the equivalent.
In practice: CbCR applies to large MNC groups, not most of the clients we serve. However, Master File obligations can apply at lower thresholds.
Can I hold shares in my UAE or Singapore company in my personal name, or must I use an Indian holding company?
An Indian resident individual can hold shares in a foreign company directly in their personal name — this is ODI by an individual, governed by the FEMA Overseas Investment Rules, 2022. The individual must register the ODI on FIRMS and file APRs. However, an Indian holding company structure is often preferred for: tax efficiency (company can receive dividends at corporate rate and manage taxation more efficiently than individual at slab rate), operational flexibility, ability to consolidate group financials, and investor-readiness (investors typically want a clean corporate holding structure rather than personal holdings). The optimal approach depends on the individual's tax residency, income profile, and the nature of the overseas business.
In practice: For NRIs who have become UAE tax residents, the personal holding of UAE company shares may be more tax-efficient, as they are not Indian tax residents — but the analysis under FEMA is separate. FEMA's Overseas Investment Rules apply to persons resident in India under FEMA, so whether they apply turns on FEMA residential status (not income-tax residency and not citizenship); a person who is non-resident under FEMA is generally not making ODI, although FEMA and tax rules on any Indian assets still need to be considered. The two regimes use different definitions of 'resident' — a critical distinction.
What is the controlled foreign company (CFC) concept and does India have CFC rules?
A Controlled Foreign Corporation (CFC) rule is a provision in domestic tax law that attributes the income of a foreign subsidiary to its parent company's taxable income in the parent's jurisdiction — to prevent profit shifting into low-tax foreign subsidiaries that do not distribute dividends. India currently does not have comprehensive CFC rules in its domestic tax legislation. The Income-tax Act has limited provisions addressing overseas income attribution in specific situations (such as Section 9 for income deemed to accrue in India), but not a full CFC regime. However, Indian tax residents investing into foreign jurisdictions should be aware that other countries' CFC rules (notably the US PFIC/CFC rules, UK CFC rules, and German CFC rules) may apply if the foreign entity is controlled by residents of those countries.
In practice: India's absence of comprehensive CFC rules is one reason why offshore holding structures can accumulate profits overseas without immediate Indian income-tax consequences. However, this does not mean there are no consequences — FEMA ODI reporting, APR obligations, and GAAR remain applicable. The BEPS project has encouraged countries to adopt CFC rules, and India may introduce them in future. We flag this risk in every long-term structuring discussion.
Where this sits in the wider engagement
Cross-Border Tax Structuring & DTAA Advisory rarely arrives on its own. The statutory basis and the current requirements are set out on the Cross-Border Tax Structuring & DTAA Advisory service page, and the related services are grouped under Business Setup.
What PNPC does
PNPC Global has practised since 1986 across India and the UAE. On Cross-Border Tax Structuring & DTAA Advisory we take the work end to end — reviewing the facts, preparing and filing what is required, and dealing with the authority through to closure.