#TaxmannPPT | Tax Conundrum in Insolvency & Bankruptcy Acquisitions | Nangia Andersen LLP

Tax Conundrum in Insolvency & Bankruptcy Acquisitions Vishwas Panjiar, Partner, Nangia Andersen LLP

Insolvency & Bankruptcy Code (IBC) and its evolution The Insolvency and Bankruptcy Code, 2016 (IBC) is the bankruptcy law of India which seeks to consolidate the existing framework by creating a single law for insolvency and bankruptcy

Introduction of the IBC law

Pre-packaged insolvency resolution process for corporate persons MSMEs due to the extreme economic problems posed by COVID-19

Resolution plan requires approval of 66% (of the voting share of financial creditors instead of the earlier requirement of 75%

Home buyer’s inclusion

Creditor approval

IBC COVID suspension

Ordinance dated 6th June, 2018: the rights of the home buyers have found legislative recognition and offered a much needed relief.

IBC Ordinance 2020 suspended initiation of corporate insolvency resolution process for six months dated 05.06.2020

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Pre-Packaged Insolvency

Cross-border insolvency regime Roll out of draft cross border insolvency provisions

Insolvency & Bankruptcy Code (IBC): Current Outlook

1st Dec 2016 Enactment Date

63 Rank In ‘Ease of doing business” India has climbed from 130 in 2016 to 63 in 2020

1.6 years Average resolution timeline in IBC in 2020(From 4.4 years in 2016)

73% cases

46% cases

Haircut under IBC

have exceeded the timeline of 270 days

have closed due to liquidation rather than approval of resolution plan

40% & 20%

3068 & 1640

2.5 Lakh Crore

Ongoing and closed cases respectively.

Recovery of out total admitted claims of 7 lakh crore as at June,2021

Upto 80%

of the cases are from Manufacturing and Real Estate respectively.

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Road so far: Income Tax Act amends for IBC companies Income tax Act, 1961 amendments Finance Act 2018: Section 140 amended for ITR verification by Resolution professional

MAT provisions Allowability of deduction of loss (including unabsorbed depreciations) in MAT

*Section 79 non applicability albeit change in shareholding after opportunity to Commissioner

*Relaxations only after affording a reasonable opportunity of being heard to the jurisdictional Principal Commissioner or Commissioner

(Fourteenth Amendment) Rules, 2020, w.r.e.f. 1-4-2020 *Rule 11UAC

Rule 11UAD

Relaxation from taxability for receiving unquoted shares for under 56(2)(x) and 50CA*

Relaxation from applicability of under 50CA on transfer of unquoted shares of company under IBC

*Relaxations only after affording a reasonable opportunity of being heard to the jurisdictional Principal Commissioner or Commissioner.

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Multifaceted IBC acquisition strategizing

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Asset pool estimation

Consideration structuring including funding modality

Listing, vis-à-vis, Delisting of CD

Corporate Restructuring Strategy

Resolution value timing and structuring

Business synergy and alignment and post integration fitment

IBC under the tax lens Taxability of Write-back of loans under normal tax and MAT provisions

Section 56(2)(x) applicability in case of acquisition of Listed Corporate Debtor shares

Capital gains on transfer of distressed assets or crown jewel of Corporate Debtor to facilitate maximisation of value

Looming additional tax contingent tax liability for pending tax litigation

Capital gains on transfer of distressed assets or crown jewel of Corporate Debtor to facilitate maximisation of value

Uncertainty on current tax relations since same subject to Departmental review

Multiplicity of tax issues and uncertainty around the relaxations provided can lead to stalling the resolution process and entail unforeseen tax outlay for the resolution applicants

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Budget expectations Tax exemption from for Hair cuts emanating from IBC process

Unfettered continuity of tax losses of the company which goes through IBC process

Exemption from anti-abuse Deeming provisions Section 56 of the ITA to provide level playing field

Clarification with respect to claim of IBC expenses

Specific relaxation to IBC acquisition from GAAR

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Thank You Vishwas.Panjiar@nangia-andersen.com

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