Initially, in most cases, an Indian subsidiary is formed without appropriately assessing its working capital requirements for starting years, and consequently, the cash flow remains a major challenge. The subsidiary also faces challenges regarding fixing the price of goods and services sold between the related entities as per transfer pricing (TP) regulations in India, within a group of entities. For instance, if a foreign company sells goods or services to the Indian subsidiary company, the consideration for those goods/services paid by the subsidiary to the mother company is under the regulation of TP. TP results in the setting of prices among associate enterprises within a group and can be used as a profit allocation method to attribute a company’s net profit (or loss) before calculating the tax to countries where it does business. Thus, appropriate accounting from the perspective of TP and intercompany cost allocations is highly desirable for corporates who are involved in regular financial transactions with global subsidiaries.
Another major challenge that a subsidiary of a foreign company faces concerns withholding taxes deducted on certain services taken from its mother/group company. The mother company does not want to take the impact of withholding taxes and always wishes to get the amount in full against their services rendered to its subsidiary company in India.
Consequently, if any service income of a foreign mother/group on which Indian subsidiary is required to deduct withholding taxes in India, then the mother/group company is required to do compliances (in few cases) in respect to the filing of its tax return in India and TP compliances in some cases.
For the last 20 years, Maier+Vidorno has been addressing these business needs of overseas companies. Our Financial Experts manage Accounting & Taxation of many foreign companies in different industries in India. We have also successfully integrated their systems to be GST ready. We also offer support services in areas of sales service, Financial Due Diligence, accounting, and HR consulting. Contact us to know more.