Loan to subsidairy company situated at Bangladesh

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yogesh vijaykumar shah (Querist)
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30 March 2011 If the Indian Holding company wants to pay loan to purchase land at Bangladesh to its subsidiary company situated at Bangladesh, whether provisions of section 2(22)(e)attracts? Alternatively can subsidiary company can raise the funds by issuing shares to its holding company. What are the tax implicaitions from view point of transfer pricing and FEMA. Please justify.

CA. Anuj Gupta

CA. Anuj Gupta (Expert)
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31 March 2011 section 2(22)(e) question may come in picture if the Indian Company has profits.

Ideally from the TP point of view you should invest in form of share capital in subsidiary company.But if you want to give the money as loan then the rate of interest charged by Indian company shall need to be benchmarked as ALP in the TP Report.

As per FEMA you can invest upto 400% of net worth as per last balance sheet.Loan and share capital come in the limit of 400% and have no difference in calculating the limit of 400%.

Also submit yearly return of Assets & Liabilities recently notified in place of FCGPR-B to AD by 15th July every year.