Tax-wary Indian firms rush to Isle of Man

The Isle of Man, the Irish-sea located tax haven, is attracting attention from Indian companies. After a plethora of mergers and acquisitions, domestic firms are finding the European island a suitable place to set up subsidiaries to carry out global buyouts.

The island is also helping Indian firms in conducting their private equity funding activities as the tax sops in that country can bring down transaction costs significantly, said experts.

Recently, two acquisitions by Indian companies originated from the Isle of Man: buyouts of a bio-science firm in Europe and a US-based manufacturing enterprise.

Isle of Man, known for its flexible corporate laws, is located in the British Isle and offers tax benefits, including no corporation tax and economic independence.

"In Isle of Man, profits made by companies are not liable to any form of corporation tax. In M&A deals, companies' needs are sometimes specific. Companies are allowed a great deal of tailoring to the particular requirements of the proposed transaction," said Mike Edwards, director, Cains, Isle of Man-based law firm.

In 2006, M&A deals involving Indian firms were valued at $20 billion. Of these, $5 billion were domestic, while $15 billion were cross-over deals and $10 billion was outbound.

Indian companies, which are planning to spread their wings in the European markets can save on the taxation costs, which will be high if the deal takes place through the parent company, which is registered in India. Similarly, company which is selling the stake could also explore the option of registering its subsidiary in the Isle of Man to reduce tax exposure.

Moreover, companies have also started using the Isle of Man route to get listed on the AIM. Out of the 18 India-related entities on the AIM, nine can trace their roots in the Isle of Man. A few others use the tax haven such as Cayman Islands.  So far, these 18 entities have mopped  up around Rs 15,822 crore (Rs 158.22 billion) through the AIM.

Legal firms in Isle of Man are also advising several private equity funds which are planning to invest in India, Edwards said.

Currently, Cains is in discussions with four Indian real estate companies, which are looking at AIM listing.