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1. Tax Regime and IP Incentives

Leading IP jurisdictions viz. Ireland, Luxembourg, Netherlands, Singapore, Switzerland, offer low effective tax IP regimes, typically through OECD compliant patent boxes.

2. Treaty Network Strength

Jurisdictions like Netherlands, Luxembourg, and Singapore have expansive treaty networks that reduce withholding taxes on royalty flows, creating efficient income channels for global licensing.

3. Substance and Economic Presence

Economic substance (local directors, decision makers etc.) is mandatory in nearly all holding jurisdictions. Tax authorities reject IP entities lacking operational presence.

4. IP Protection Environment

The US, EU, and Switzerland continue to lead in terms of legal protection, enforcement quality, and IP litigation infrastructure.

2. Common IP Holding Structures Used by Multinational Groups

Below is a brief, tax focused overview of global IP holding structures.

1. Centralized IP Holding Company (IP Hold Co)
   • IP is owned in a single tax efficient, substance rich jurisdiction
   • R&D Entity (located in other jurisdiction) develop and charge cost plus margin to the IP Hold Co.
   • IP Hold Co grant IP rights to operating entities in other jurisdictions for royalty.

   Tax benefits: Lower effective tax rates, strong treaty networks, and defensible substance and DEPME alignment. GAAR and PPT provisions to be taken care of.

2. Regional IP Hubs
   • Multinational group establishes multiple IP ownership and development entities, each responsible for a specific region (EU, APAC, Americas)
   • Regional Hub Licenses IP to Operating Companies in the Region

   Tax Implications: Reduction in cross border royalty withholding tax; TP Requirements to be met, Alignment with BEPS & DEMPE Compliance. GAAR and PPT provisions to be taken care of.

3. Licensing and Sublicensing Model
   • Ultimate IP Hold Co licenses IP to an intermediate IP Hold Co generally for a royalty
   • Intermediate IP Hold Co then sublicenses to local operating entities for a royalty

   Tax Implications: Royalties taxed at respective entity level - operating entities taking royalties as deduction. However, important to ensure that intermediate Hold Co has commercial substance (not mere conduit), profits retained in intermediate Hold Co in line with DEPME functions. Withholding taxes can be minimized. GAAR and PPT provisions to be complied with.

4. Cost Contribution / Cost Sharing Arrangements
   • Group entities jointly fund R&D and co own IP in proportion to the expected future economic benefit
   • Instead of royalties, cost sharing payments made to keep contributions aligned with expected benefits (for use of IP made)

   Tax Implications: No withholding tax implications, cost contributions claimed as deduction, it is important to align the functions with DEMPE, compliance with BEPS Pillar II provisions required. GAAR and PPT provisions to be taken care of.

3. If a Group Currently Holds IP in India: Options for Migration or Internal Structuring

Many MNEs and Indian origin companies currently hold core IP in India due to historic development teams. With globalization, there may be a need to shift ownership to a globally efficient IP jurisdiction Below are a few restructuring options which could be considered for shifting the IP:

• Option 1: Direct IP Transfer to IP Hold Co

  A transfer of IP from India to an overseas IP Hold Co.

  Mechanism

  • Transfer executed via transfer deed.
  • IP Hold Co pays arm’s length purchase price.

  Tax/Regulatory Implications

  • Transfer triggers capital gains in India; valuation required. Withholding tax requirements
  • FEMA compliance is mandatory for transfer of intangible assets.
  • GST impact to be considered
• Option 2: Hive Off of IP into a Newly Created Indian Entity Followed by Share Transfer

Mechanism

• Transfer IP (undertaking) into a dedicated India SPV (can be done as a demerger or slump sale)
• Transfer shares of that SPV to the IP Hold Co

Tax/Regulatory Implications

• Capital gains on hive off of IP (tax benefits under demerger, tax cost can be reduced under slump sale)
• Capital gains on share transfers. Can be minimized to a greater extent. Valuation requirements to be complied with – Withholding tax requirements to be complied with
• FEMA implications (including valuation requirements) on share transfer to be taken care of.
• Company Law provisions to be complied with
• Option 3: Cross-Border Merger

The Indian company holding IP merges into a IP Hold Co entity outside India, shifting IP ownership.

Tax/Regulatory Implications

• Capital gains impact on Indian Co and shareholders to be taken care of
• Compliance with FEMA (Cross Border Merger) Regulations, 2018 to be done – FEMA Odi regulations to be complied with if Indian shareholders receive shares of IP Hold Co
• Company law provisions relating to outbound merger to be complied with
• Valuation requirements under FEMA and Company Law to be complied with

Finding a buyer for an unlisted share can take a long time. Even when a buyer is found, the deal pricing completely depends on the commercial negotiations. This inability to exit quickly and at fair value is what we call illiquidity, and to account for it, we apply an illiquidity discount to the value of the company.

In India, this is a judgment call valuers face frequently, given the large base of unlisted companies across sectors.

What Does a Valuer Mean by Control Discounts?

Control Discounts, in pure valuation language, refers to the ability of a shareholder to influence what happens inside the company.

A shareholder holding 60% can push through decisions, whereas a shareholder holding 10% in the company, in most cases, cannot. This difference in power is real, and it affects valuation.

In India, this matters even more considering the fact that most businesses are promoter-driven, with decision-making tightly held at the top. Minority shareholders often have little say, even if investor agreements provide some protective rights.

How These Discounts are applied in Practice

Here is how the math actually works in a typical valuation assignment: Suppose a company is valued at ₹50 crore using a standard method like Discounted Cash Flow. At face value, that is the valuation number we arrive at. But this is the value before we account for ground realities.

We then ask two questions:

• Can this stake be sold easily? → No. It is an unlisted company with no active buyer base.
• Does the ownership carry any meaningful control? → No. It is a passive minority holding.

We then apply, say, a 10% control discount and a 10% illiquidity discount:

• After illiquidity and control discount: ₹50 crore × 80% = ₹40 crore

A company that appeared worth ₹50 crore on paper is now valued at ₹40 crore — a reduction of 20% straightaway. This is what makes these discounts so significant. A valuation without these adjustments is simply incomplete and this is where the valuer's judgment goes beyond the spreadsheet.

What Influences the Quantum of these Discounts?

There is no set precedent for a valuer to decide upon these percentages, the quantum of these discounts depends on several factors:

• Shareholder agreements - Does the investor have tag-along rights, exit clauses, or a right of first refusal?
• Company size and reputation - A well-known private company with strong fundamentals attracts more buyers, which reduces illiquidity.
• Industry and growth potential - High-growth sectors attract strategic buyers, improving exit prospects.
• Past transaction benchmarks - Comparable deals in similar businesses give a reference point.

International studies provide a range, but it generally boils down to valuer’s judgement on the industry and other company specific prospects, especially given India's unique ownership structures and still-maturing secondary markets.

Why This Matters

Ignoring these discounts or applying them mechanically without thought often leads to valuations that do not reflect reality. Overstating a valuation can mislead investors, create disputes, or result in regulatory scrutiny, especially since SEBI and income tax regulations in India increasingly require proper justification for valuation assumptions and adjustments.

What is transfer?

First thing one needs to understand is the term “Transfer”. It is pertinent to note that the Indian data protection framework falls short in defining this term. However, as per Oxford dictionary this refers to “move from one place to another”. Hence, it can be interpreted widely. From a general data practice perspective transfer can be effected in the following ways -

• Data sent to the transferee for storage in the latter’s country (Data centers located in transferee country)
• Data is stored in transferor country but is virtually accessed by the transferee.

Old Regime

The Indian data protection regime is marking a significant transition from the Information Technology (Reasonable security practices and procedures and sensitive personal data or Information) Rules, 2011 (“SPDI Rules”) under the Information Technology Act, 2000 (“IT Act”) to the Digital Personal Data Protection Act, 2023 (“DPDPA”) by May 2027.

The SPDI Rules as it is the first data protection law in India is primitive. While SPDI Rules per se does not prohibit cross border transfer of sensitive personal data, Rule 7 allows it provided the following are complied with –

• Data protection laws of the other country must be in the same level as that of India.
• Transfer is allowed only if it is necessary for the performance of the contract between Company and person.
• Companies must obtain consent for transfer of information to another country.

Moreover, “sensitive personal information” is finite list of personal information relating to –

• password;
• financial information such as Bank account or credit card or debit card or other payment instrument details ;
• physical, physiological and mental health condition;
• sexual orientation;
• medical records and history;
• Biometric information;
• any detail relating to the above clauses as provided to body corporate for providing service; and
• any of the information received under above clauses by body corporate for processing, stored or processed under lawful contract or otherwise.

While, not all personal information is sensitive personal information, all sensitive personal information is personal information. That is to say that Rule 7 of SPDI Rules shall only apply when there is transfer of sensitive personal data. However, personal data such as name, address, social security numbers, employment records can be transferred cross-border without any restriction until May 2027.

New regime

The implementation of DPDPA by May 2027 ushers in a new era on the protection of personal data. The legislation adopts an expansive and far-reaching approach to its applicability, as set out below:

• Unlike the erstwhile SPDI rules, the DPDPA defines personal data to include any and all information through which an individual is identifiable.
• The DPDPA primarily concerns itself with the processing of personal data within the territory of India. It does not differentiate between the data of Indian citizens and non-Indian citizens, be it digitized or not, or be it processed by Indian entity or not. As long as processing of personal data happens within Indian borders, the DPDPA is applicable.
• It is trite to note that the DPDPA is indifferent to the location from which personal data is accessed or controlled. As long as the processing (normalization, deidentification and data analysis) is carried out within India, the obligations under DPDPA extends to Data Fiduciary, even if such data fiduciary is situated outside India.

With regard to restrictions on transfer of data, section 16 of the DPDPA empowers the Central Government of India to blacklist certain countries to whom data fiduciaries are restricted to transfer data for processing. However, it does not prohibit the application of any sector specific law restricting transfer of personal data. In the absence of any sector specific legislation, MNC’s may, for the time being, operate with relative certainty in transferring data to and from India, as –

• The Central Government is yet to roll out list of blacklisted countries and regulations/rules restricting transfer of personal data to other countries.
• Moreover, section 16 of the DPDPA only restricts a Data Fiduciary to transfer the personal data for further processing to another country. However, alternatively, the law does not restrict a Data Processor from transferring the data to any other country be it even for storage.

Conclusion:

From the above discussion, it is clear that currently in India transfer of personal data across borders is permitted provided certain compliances are met (i.e., data protection laws of countries are equal and comparable, transfer should be allowed if necessary for performance of contract and obtaining of consent). That being said, it is pertinent to note that Personal Data Protection is an evolving jurisprudence. In India, data privacy/right to privacy is viewed as a constitutional right of Right to Life under Article 21 of the Constitution of India, 1950. Furthermore, the primary objective of the DPDPA is to “recognize the right to individuals to protect their personal data”. Recently, the Supreme Court of India, while hearing an appeal from Meta Platforms Inc. (WhatsApp) prohibited Meta from transferring personal data of its Indian users to other Meta Platform Entities on the grounds of constitutional right of privacy. There is growing importance to data security and data privacy in India. Given that the DPDPA has cross border application, on how judiciary or legislature will view compliance under this only time will tell.

Who Can Lend Now—and What That Signals

• Under the earlier regime, recognised lenders were limited to specific categories of institutions that met prescribed regulatory and jurisdictional criteria.
• The new framework moves away from this prescriptive listing and permits ECBs to be raised from any person resident outside India, including foreign branches and IFSC units of entities engaged in regulated lending activity.
• This change signals the RBI’s decision to rely on market discipline and lender due diligence rather than regulatory screening and acknowledges the diversity of global credit markets which allows Indian borrowers to access a wider spectrum of funding sources.

Rethinking Borrowing Limits

• ECB access was previously constrained by a fixed cap, with borrowers permitted to raise up to USD 750 million per financial year under the automatic route.
• This approach imposed a uniform ceiling, largely indifferent to the borrower’s balance sheet strength or aggregate leverage.
• In the revised framework, borrowers may now raise ECBs up to the higher of
  1. USD 1 billion in outstanding ECBs
  2. total outstanding borrowings; up to 300% of net worth, based on the latest audited balance sheet.
• In doing so, the RBI has shifted from a quantitative cap to a model that allows access to offshore debt in proportion to a borrower’s capital base.

Untangling Purpose, Tenor and Cost

• Under the earlier ECB framework, end use restrictions were not merely about how borrowed funds could be deployed. They in turn affected several other factors such as tenor and cost of borrowing.
• The same borrower raising the same amount could face different minimum maturities solely because of the stated end use. This often-pushed borrowers to structure transactions backwards by shaping end use narratives to secure a more favourable tenor rather than aligning borrowings with business needs.
• End use also indirectly constrained pricing and refinancing, as longer mandated maturities increased interest rate and credit risk for lenders, while a fixed all in cost ceiling prevented those risks from being priced appropriately.
• The revised ECB framework marks a significant shift from the earlier approach by delinking end use from maturity and pricing.
• Pricing is now market determined, and the minimum average maturity period has been standardised at 3 years. A limited flexibility is retained for manufacturing entities, which may access ECBs with a defined cap for a shorter tenure between 1 and 3 years.
• Further, end-use regulation is also anchored around a clearly defined negative list, with proceeds prohibited from being used for:
  • Chit funds and Nidhi Companies
  • Real estate business and construction of farmhouses
  • Agricultural and animal husbandry activities
  • Plantation activities (except tea, coffee, rubber, cardamom, palm and olive oil)
  • Trading in Transferable Development Rights
  • Investment in listed and unlisted securities (Except for corporate restructuring transactions)
  • Repayment of INR loans classified as NPAs
  • On lending for prohibited activities

Simplifying Reporting Requirements

• On the reporting front, the revised framework introduces a significant shift from monthly reporting to an event based regime.
• Form ECB 2 is now required to be filed only upon the occurrence of specified events - namely, a change in the outstanding principal amount (whether by way of further drawdown or repayment) or the payment of interest.
• This eliminates the requirement for routine monthly filings in periods where there is no movement in principal or interest.
• The move simplifies and reduces the compliance burden for borrowers, particularly those who were earlier required to file repeated returns despite having fully no draw down or repayment of the Borrowing.

By moving from a model rooted in entry restrictions and policy linkages to one based on prudential safeguards, market discipline, and structural oversight, the RBI’s revised ECB framework seeks to redefine how offshore capital is accessed and regulated.