Transfer Pricing India

OECD PILLAR TWO 15% Global Minimum Tax

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OECD PILLAR TWO 15% Global Minimum Tax OECD Pillar Two – 15% Global Minimum Tax: Complete Guide 2026 The OECD/G20 Inclusive Framework’s Pillar Two — also known as the Global Anti-Base Erosion (GloBE) Rules — represents the most significant overhaul of international corporate taxation in more than a century. By establishing a global minimum corporate tax rate of 15%, it aims to end the decades-long race to the bottom where multinational enterprises (MNEs) shifted profits to low-tax jurisdictions, depriving nations of critical tax revenues. As of 2026, over 140 countries have agreed to adopt the framework, and India stands at a pivotal juncture — having integrated Pillar Two principles into its domestic tax regime while also grappling with the implications for its vast pool of international investments, Special Economic Zones (SEZs), and outbound Indian multinationals. This guide covers every aspect of Pillar Two — from global architecture to India-specific impact, calculations in Indian Rupees (₹), and what businesses must do right now. 1. Background — The Race to the Bottom & Why Pillar Two Was Needed For decades, multinational corporations exploited gaps and mismatches in international tax rules to minimise their global tax burden. Structures such as the ‘Double Irish’, ‘Dutch Sandwich’, and ‘Singapore Hub’ allowed MNEs to route profits through low or zero-tax jurisdictions, often paying effective tax rates (ETRs) of less than 5% or even 0% on billions of dollars of profit. 1.1 The BEPS Project — Setting the Stage The OECD launched the Base Erosion and Profit Shifting (BEPS) project in 2013, resulting in 15 Action Plans in 2015. While BEPS Actions addressed specific avoidance techniques, they did not eliminate the fundamental incentive for profit shifting — the existence of jurisdictions with very low or zero tax rates. 1.2 The Two-Pillar Solution In October 2021, the OECD/G20 Inclusive Framework reached a landmark agreement on a Two-Pillar Solution: Pillar One: Re-allocation of taxing rights — large MNEs (revenue > €20 billion, profit margin > 10%) must pay a portion of their residual profits to market jurisdictions (where customers are). Effective 2026–27. Pillar Two: Global minimum tax of 15% — ensures that MNEs with consolidated global revenue of €750 million or more pay at least 15% tax in every jurisdiction where they operate. Key Context for India India is both a source country (many foreign MNEs operate here) and a residence country (Indian MNEs like Tata, Infosys, Wipro, Reliance operate globally). Both dimensions are impacted by Pillar Two. India’s standard corporate tax rate is 22% (base) / 15% (new manufacturing companies under Section 115BAB), making the interaction with the 15% minimum tax complex. 2. What is OECD Pillar Two? — Core Architecture Pillar Two is a comprehensive set of rules designed to ensure that large MNEs pay a minimum effective tax rate of 15% on profits earned in each jurisdiction. It operates through a system of interlocking domestic and treaty-based rules. 2.1 Scope — Who Does It Apply To? Pillar Two applies to Multinational Enterprise (MNE) Groups with: Annual consolidated revenue of €750 million (approximately ₹6,750 crore at ₹90/€) or more in at least 2 of the preceding 4 fiscal years. Operations in at least two jurisdictions. It does NOT apply to: Government entities, international organisations, non-profit organisations, and pension funds. Investment funds and real estate investment vehicles that are Ultimate Parent Entities (UPEs). Pure domestic groups (operating in only one country). 2.2 Key Pillar Two Rules — Overview Rule Full Name Who Applies It Trigger IIR Income Inclusion Rule Parent jurisdiction Top-up tax on low-taxed foreign subsidiary profits UTPR Undertaxed Profits Rule Any group jurisdiction Backstop if IIR not applied; denies deductions or imposes top-up STTR Subject to Tax Rule Source country (treaty) Withholding tax if intra-group payments taxed below 9% QDMTT Qualified Domestic Minimum Top-up Tax Source jurisdiction itself Domestic version of top-up tax; keeps revenue in source country 3. The GloBE Rules — Detailed Mechanics 3.1 Effective Tax Rate (ETR) Calculation The ETR under GloBE is calculated jurisdiction-by-jurisdiction using the following formula: GloBE ETR Formula GloBE ETR = Adjusted Covered Taxes ÷ GloBE Net Income If GloBE ETR < 15% → Top-up Tax is triggered Top-up Tax = (15% − GloBE ETR) × GloBE Net Income − Substance-Based Income Exclusion (SBIE) 3.2 Adjusted Covered Taxes Covered Taxes include current and deferred income taxes. Key adjustments include: Deferred Tax Assets (DTAs) from losses may be included but are subject to a 15% recapture threshold. Taxes related to excluded dividends or equity gains are removed. Certain non-income taxes (GST, customs duties) are NOT covered taxes under GloBE. 3.3 GloBE Net Income GloBE Income starts from financial accounting income (IFRS/Ind AS) with specific adjustments: Excluded dividends and equity gains removed Policy disallowed expenses (bribes, fines) added back Asymmetric foreign currency gains/losses adjusted Qualified Refundable Tax Credits treated as income 3.4 Substance-Based Income Exclusion (SBIE) SBIE is a carve-out for real economic activity — it reduces the base on which top-up tax is computed. It is calculated as: SBIE Formula SBIE = (5% × Eligible Payroll Costs) + (5% × Eligible Tangible Asset Net Book Value) Note: During transition period (2026), the payroll percentage is 9.8% and tangible assets rate is 7.8% — these reduce to 5% by 2033. 3.5 De Minimis Exclusion A jurisdiction is excluded from top-up tax if both conditions are met: Average GloBE Revenue in that jurisdiction is less than €10 million (approx. ₹90 crore) Average GloBE Net Income is less than €1 million (approx. ₹9 crore) 3.6 Transitional Country-by-Country Report (CbCR) Safe Harbour For the years 2024–2026 (transition period), an MNE may apply the Transitional CbCR Safe Harbour which exempts a jurisdiction from detailed GloBE calculations if any one of three tests is met: De Minimis Test: Revenue < €10M and income < €1M in CbCR Simplified ETR Test: ETR computed using CbCR data ≥ transitional rates (15% for 2024, 16% for 2025, 17% for 2026) Routine Profits Test: GloBE income ≤ SBIE computed from CbCR data 4. Income Inclusion Rule (IIR) — How

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What is a Holding Company?

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What is a Holding Company? A Complete Guide for Indian Businesses — 2026 Edition A holding company is one of the most powerful corporate structures used by large conglomerates and growing businesses in India. Whether you are an entrepreneur planning business expansion, an investor looking to diversify, or a corporate professional studying business law, understanding holding companies is essential in 2026. In this comprehensive guide, we break down everything you need to know — from the legal definition under Indian law to tax benefits, compliance requirements, and real-world examples from the Indian market. What is a Holding Company? A Holding Company is a company that owns a controlling interest (more than 50% of the voting shares) in one or more other companies, known as Subsidiary Companies. The holding company does not typically engage in direct business operations itself; instead, it controls and manages its subsidiaries. Under Section 2(46) of the Companies Act, 2013, a holding company is defined as: “A company shall be deemed to be the holding company of another if that other is its subsidiary company.” Simple Example Imagine a company called ABC Holdings Pvt. Ltd. It owns 70% of the shares of XYZ Retail Pvt. Ltd. and 60% of PQR Tech Pvt. Ltd. In this case, ABC Holdings is the Holding Company, while XYZ Retail and PQR Tech are its Subsidiaries. Legal Framework: Holding Companies Under Indian Law in 2026 Companies Act, 2013 The primary legislation governing holding companies in India is the Companies Act, 2013. Key sections include: Section 2(46): Definition of a Holding Company Section 2(87): Definition of a Subsidiary Company Section 129: Consolidated Financial Statements requirement Section 186: Loans and investments by companies Section 179 read with Section 180: Board resolutions for inter-company transactions SEBI Regulations (2026) For listed holding companies, SEBI (Securities and Exchange Board of India) has updated regulations that include: SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 — amended up to 2026 Mandatory disclosure of all subsidiary transactions in the annual report Material subsidiary policy: A subsidiary contributing 10% or more to consolidated revenue is considered ‘material’ At least one independent director of the holding company must be on the board of a material listed subsidiary RBI Guidelines for Holding Companies (2026) The Reserve Bank of India (RBI) regulates Non-Banking Financial Companies (NBFCs) that act as holding companies. Key rules include: Core Investment Companies (CICs) must have assets of at least ₹100 crore to require RBI registration CICs must invest at least 90% of their net assets in group companies Not more than 30% of owned funds can be raised from public funds Types of Holding Companies in India Type Description Indian Example Pure Holding Company Only holds shares; no direct operations Tata Sons Pvt. Ltd. Mixed Holding Company Holds shares AND conducts its own business Reliance Industries Ltd. Intermediate Holding Company Subsidiary of a parent but holds its own subsidiaries Wipro Enterprises Financial Holding Company Primarily holds financial/banking subsidiaries Bajaj Finserv Ltd. Core Investment Company (CIC) RBI-regulated; invests in group companies Kotak Mahindra Investments Shell Holding Company Minimal operations; mainly holds assets or IP Various SPV Structures Holding Company vs Subsidiary Company vs Associate Company Feature Holding Company Subsidiary Company Associate Company Ownership Owns >50% shares Owned by holding co. 20–50% ownership Control Full control Controlled Significant influence Legal definition Sec. 2(46) CA 2013 Sec. 2(87) CA 2013 Sec. 2(6) CA 2013 Financial statements Consolidates all Consolidated into parent Equity method used Board autonomy Sets board policy Limited autonomy Influenced, not controlled Indian example Tata Sons Tata Motors Tata Teleservices Why Set Up a Holding Company in India? Key Benefits 1. Centralised Control and Strategic Planning A holding company allows promoters to control multiple businesses from a single entity. Decision-making, capital allocation, and strategic direction are centralised, making it easier to manage diversified business empires like the Tata Group or Aditya Birla Group. 2. Limited Liability Protection Each subsidiary is a separate legal entity. If one subsidiary incurs losses or faces litigation, the assets of other subsidiaries and the holding company itself are protected. This ring-fencing of risk is a major advantage. 3. Tax Efficiency — 2026 Indian Tax Rules Under Indian tax law, there are several tax advantages for holding company structures: Dividend Income: Under Section 10(34) of the Income Tax Act, dividends received by an Indian holding company from domestic subsidiaries were previously exempt. Post the Finance Act 2020 amendments, dividends are now taxable in the hands of the holding company at applicable rates. However, inter-company dividends within a group can be managed through tax planning. Group Consolidation for MAT: Minimum Alternate Tax (MAT) applies at 15% of book profits for companies with a book profit exceeding ₹0 (updated rate as of 2026). Capital Gains Management: Transfer of shares between holding and wholly-owned subsidiary is exempt from capital gains tax under Section 47(iv) and (v) of the Income Tax Act. Intra-group Services: Transfer pricing regulations (Sections 92–92F) govern transactions between holding and subsidiary to prevent profit shifting. 4. Easier Capital Raising Holding companies can raise funds at the parent level and channel capital to subsidiaries that need it most. They can also pledge shares of subsidiaries as collateral for loans. For example, Adani Enterprises has frequently used inter-company fund flows for capital allocation across its ports, energy, and infrastructure businesses. 5. Facilitates Mergers and Acquisitions Acquisitions are simpler through a holding structure. The holding company can acquire a new business by purchasing its shares, integrating it as a subsidiary without disturbing existing subsidiary operations. 6. Intellectual Property (IP) Centralisation Brands, patents, trademarks, and technology can be held by the holding company and licensed to subsidiaries. This protects IP assets and creates a royalty revenue stream within the group. 7. Succession Planning and Family Business Structuring Holding companies are widely used by Indian family businesses (like the Birla or Ambani families) to facilitate smooth succession planning, prevent fragmentation of ownership, and maintain family control even as businesses grow. How to Incorporate a Holding Company in India —

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Transfer Pricing Rules in India

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Transfer Pricing Rules in India Everything Businesses & Tax Professionals Need to Know in 2026 Transfer Pricing in India In today’s globalised economy, multinational corporations (MNCs) and large Indian businesses frequently enter into transactions with their associated enterprises (AEs) — subsidiaries, holding companies, or group entities across borders. These inter-company transactions, if left unregulated, can be manipulated to shift profits to low-tax jurisdictions, eroding India’s tax base significantly. Transfer Pricing (TP) is the mechanism through which the price of goods, services, intellectual property, or financial instruments exchanged between related parties is determined. The Indian government, recognising this challenge, introduced comprehensive Transfer Pricing Rules under Sections 92 to 92F of the Income Tax Act, 1961 — rules that are rigorously enforced by the Income Tax Department and the Central Board of Direct Taxes (CBDT). Transfer Pricing rules ensure that transactions between related parties are conducted at arm’s length — the same price that would be charged between unrelated parties in an open market. This comprehensive guide covers every dimension of Transfer Pricing rules in India as updated in 2026 — from legal foundations and pricing methods to compliance requirements, penalties, and the latest CBDT updates. 2. Legal Framework: Sections 92 to 92F of the Income Tax Act, 1961 The Transfer Pricing provisions in India are primarily governed by Chapter X of the Income Tax Act, 1961. Here is a section-wise breakdown: Section Subject Matter Key Provision Section 92 Computation of Income from International Transactions Income from any international/specified domestic transaction between AEs must be computed having regard to Arm’s Length Price (ALP). Section 92A Meaning of Associated Enterprise Defines the criteria for two enterprises to be considered ‘associated’ (e.g., holding 26%+ voting power). Section 92B Meaning of International Transaction Covers purchase/sale of tangible/intangible property, provision of services, lending/borrowing, cost-sharing agreements, and business restructuring. Section 92BA Specified Domestic Transactions (SDT) Covers domestic transactions between related parties where the aggregate value exceeds ₹20 Crore. Section 92C Computation of Arm’s Length Price Prescribes the six approved methods for computing ALP. Section 92CA Reference to Transfer Pricing Officer (TPO) The Assessing Officer can refer the determination of ALP to the TPO. Section 92CB Safe Harbour Rules Allows eligible taxpayers to accept pre-determined ALP without challenge. Section 92CC/92CD Advance Pricing Agreement (APA) Bilateral/multilateral agreement between taxpayer and tax authority on ALP for future transactions. Section 92D Maintenance of Information & Documents Mandates maintaining prescribed documentation for TP transactions. Section 92E Report from Accountant Requires filing of Form 3CEB (Accountant’s Report) for taxpayers with international or SDT transactions. Section 92F Definitions Defines key terms — arm’s length price, enterprise, intangible property, etc. 3. Who Does Transfer Pricing Apply To? Transfer Pricing regulations in India apply to: Multinational companies with subsidiaries, holding companies, or group entities in India or abroad Indian companies engaged in cross-border transactions with foreign associated enterprises Indian companies engaged in specified domestic transactions with related domestic entities Firms, Limited Liability Partnerships (LLPs), and trusts with international transactions Start-ups and e-commerce entities receiving funding from or transacting with foreign parent companies 3.1 Associated Enterprise (AE) — Who Qualifies? Under Section 92A, two enterprises are considered ‘associated’ if one participates directly or indirectly in the management, control, or capital of the other. Specific thresholds include: One enterprise holds 26% or more voting power in the other One enterprise advances a loan constituting 51% or more of total assets of the other One enterprise guarantees 10% or more of total borrowings of the other Enterprises are under common control or management One enterprise appoints more than half of the Board of Directors of the other 4. What is an International Transaction? Section 92B defines ‘International Transaction’ as a transaction between two or more associated enterprises, either or both of whom are non-residents, in the nature of: Purchase, sale, or lease of tangible property (machinery, inventory, equipment) Purchase, sale, or licence of intangible property (patents, trademarks, copyrights, know-how) Provision of services (management services, technical services, IT services, legal services) Lending or borrowing of money (inter-company loans, credit lines) Any transaction having a bearing on the profits, income, losses, or assets of the enterprise Business restructuring, including transfer of assets, risks, or functions Cost contribution arrangements (CCAs) and cost-sharing agreements 5. Specified Domestic Transactions (SDTs) From AY 2013-14 onwards, India also applies Transfer Pricing norms to specified domestic transactions under Section 92BA. SDTs are transactions between related domestic parties where the aggregate value exceeds ₹20 Crore in a financial year. SDTs include: Expenditure relating to payments to domestic related parties under Section 40A(2)(b) Transactions under Section 80A — excess profit claims in relation to related parties Transactions under Sections 80IA, 10AA, etc. — tax holidays between related units Any other transaction as may be prescribed Note: As of 2026, the SDT threshold is ₹20 Crore per year. Businesses crossing this limit must comply with full TP documentation and Form 3CEB filing requirements. 6. Methods to Determine Arm’s Length Price (ALP) Section 92C prescribes six approved methods for computing the Arm’s Length Price. The taxpayer is expected to select the Most Appropriate Method (MAM) based on the nature of the transaction, functional analysis, and availability of comparable data. Method Full Name Best Suited For CUP Comparable Uncontrolled Price Method Commodity transactions, standard goods, interest on loans RPM Resale Price Method Distribution transactions where goods are resold to third parties CPM Cost Plus Method Manufacturing transactions, provision of services TNMM Transactional Net Margin Method Most commonly used; services, manufacturing, distribution PSM Profit Split Method Highly integrated transactions; unique intangibles OTM Other Transaction Method Any other method as may be prescribed by CBDT 6.1 Most Appropriate Method (MAM) As per Rule 10C of the Income Tax Rules, the Most Appropriate Method must be selected considering: The nature and class of the international transaction The class or classes of the associated enterprises entering into the transaction and the functions performed, risks assumed, and assets employed The availability, coverage, and reliability of data necessary for application of the method The degree of comparability

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Foreign Subsidiary of Indian Company

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Foreign Subsidiary of an Indian Company: The Ultimate A-to-Z Guide for 2026 India’s economy has grown to become one of the world’s largest, and Indian companies are aggressively expanding their global footprint. Setting up a foreign subsidiary has become a strategic necessity for Indian businesses aiming to access new markets, optimise tax structures, acquire foreign talent, and build a globally recognised brand. In 2026, with updated RBI guidelines, revised FEMA regulations, and India’s new overseas investment framework, the process is more structured — and more exciting — than ever before. This comprehensive guide covers everything an Indian promoter, CFO, or legal counsel needs to know: what a foreign subsidiary is, how it differs from other structures, the step-by-step process under current law, tax implications, compliance requirements, funding routes, and much more. 1. What is a Foreign Subsidiary of an Indian Company? A foreign subsidiary is a company incorporated in a foreign country in which an Indian parent company holds more than 50% of the voting equity share capital, either directly or through another subsidiary. The parent company (the Indian entity) is called the holding company, and the overseas entity is the subsidiary. Under the Foreign Exchange Management (Overseas Investment) Rules, 2022 — which replaced the earlier ODI (Overseas Direct Investment) framework — and subsequent RBI Master Directions updated through 2025-26, the definition and compliance requirements for such subsidiaries are clearly laid out. 💡 A Wholly Owned Subsidiary (WOS) is a special type where the Indian parent owns 100% of the share capital of the foreign entity. 2. Types of Foreign Business Structures for Indian Companies Before incorporating a foreign subsidiary, it is essential to understand the different structures available: Structure Ownership Liability Tax Treatment Best For Wholly Owned Subsidiary (WOS) 100% Indian parent Separate legal entity Local + Indian CFC rules Full control, large operations Joint Venture (JV) Shared with foreign partner Separate entity Depends on JV agreement Market entry with local partner Branch Office Extension of Indian company Parent bears liability Taxed in both countries Limited service operations Representative / Liaison Office Extension — no commercial activity Parent bears liability Not taxable (no revenue) Market research, promotion Project Office Temporary setup for a project Limited to project duration Project-based taxation Specific contracts/projects 3. Why Indian Companies Set Up Foreign Subsidiaries in 2026 The motivations for Indian companies to establish foreign subsidiaries have evolved significantly. In 2026, the top strategic reasons include: Market Access & Global Expansion: Direct presence in target markets (USA, UAE, Singapore, UK) enables sales, customer service, and brand building. Technology & IP Acquisition: Many Indian IT and pharma companies set up subsidiaries in innovation hubs to acquire patents, software, and R&D capabilities. Tax Efficiency: Jurisdictions like Singapore (17% corporate tax, 0% on qualifying dividends) and UAE (9% with free zone benefits) offer tax advantages over India’s 25-30% corporate tax rate. Access to Foreign Capital: A foreign subsidiary can raise foreign currency loans, issue equity to foreign investors, and tap global capital markets more easily. Talent Pool: Hiring globally skilled professionals in their local jurisdiction while leveraging Indian management expertise. Regulatory Advantages: Certain industries (e.g., fintech, crypto) have more favourable regulatory environments abroad. Currency Diversification: Revenue in USD, EUR, or AED protects against INR depreciation risk. Listing Abroad: A foreign subsidiary can be the vehicle for an IPO on NYSE, NASDAQ, SGX, or other exchanges, while the Indian parent retains control. 4. Legal Framework Governing Foreign Subsidiaries in 2026 4.1 Foreign Exchange Management Act (FEMA), 1999 FEMA is the primary law governing all cross-border financial transactions by Indian residents and entities. The Foreign Exchange Management (Overseas Investment) Rules, 2022 (OI Rules) and the Foreign Exchange Management (Overseas Investment) Regulations, 2022 (OI Regulations) form the core framework, as updated by RBI circulars through March 2026. 4.2 Overseas Direct Investment (ODI) — Key Definitions ODI means investment by an Indian entity in the equity capital of a foreign entity, or subscribing to the Memorandum of Association of a foreign entity. An Indian entity includes companies, LLPs, registered partnership firms, and individuals under Liberalised Remittance Scheme (LRS). Financial Commitment means the total financial exposure by an Indian entity to its foreign investment — including equity, loans, and guarantees. 4.3 Automatic Route vs. Approval Route Criterion Automatic Route Approval Route (RBI/Govt) Who approves No prior approval — only post-facto filing with AD bank RBI or Government of India Financial Commitment Limit Up to 400% of Net Worth of Indian entity Beyond 400% of Net Worth Sector Any sector not in negative list Financial Services sector, Pakistan/FATF-blacklisted countries Step-down subsidiary Allowed — subsidiary can invest further Additional compliance required Timing of Investment Anytime after filing Form ODI Only after approval ⚠️ Note: As of April 2026, RBI has clarified that investments in the financial services sector abroad (banking, insurance, NBFC) by Indian entities require prior RBI approval regardless of amount. 4.4 Companies Act, 2013 — Sections Relevant to Foreign Subsidiaries Section 2(87): Defines ‘subsidiary company’ — more than 50% of total voting power or control of composition of the board. Section 186: Loans and investments by companies — applicable even for overseas loans to subsidiaries. Section 129: Preparation of consolidated financial statements including foreign subsidiaries. Section 139/143: Auditor’s reporting obligations extend to subsidiaries. Schedule III (Amendment 2021, effective 2022): Mandatory disclosure of foreign subsidiary details in the parent’s financial statements. 5. Eligible Indian Entities — Who Can Set Up a Foreign Subsidiary? Not every Indian entity can invest abroad. Here are the eligibility criteria under the current framework: Entity Type Eligible? Conditions Indian Company (Pvt/Public) Yes Must have net profit in 3 of preceding 5 years; no regulatory actions pending LLP registered in India Yes Subject to FEMA OI Rules; RBI general permission for ODI Registered Partnership Firm Yes (limited) Only in operating entities; not in financial services Proprietorship / Individual Yes (via LRS) Up to USD 2,50,000 per financial year under LRS Resident Individual (via LRS) Yes USD 2,50,000 per year ceiling; for operating business, personal investment Startups (DPIIT Recognised)

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Transfer Pricing India

OECD PILLAR TWO 15% Global Minimum Tax

What is a Holding Company?

Transfer Pricing Rules in India

Foreign Subsidiary of Indian Company

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