Taxing times in America

Indian investors in the US are encountering the same tax troubles that have long since frustrated American businesses in India.Great care must be taken to minimize exposure

Daniel M Davidson and Andrea A Ramezan-Jackson explain

Ajoint report by the Federation of Indian Chambers of Commerce and Industry and international accounting firm Ernst & Young revealed that in the first half of 2006, the total value of outbound business deals by Indian companies exceeded the value of inbound deals for the first time. Meanwhile, the value of foreign acquisitions by Indian enterprises has increased seven-fold since 2000.

The US, India’s largest trading partner, has been a particularly significant target of Indian investment. During the 2006-2007 financial year, 46 outbound investment deals to the US amounted to more than US$2 billion.

India’s rapid rate of economic growth (expected to be around 9.4% in 2007), combined with market-oriented reforms that are integrating the Indian economy with the rest of the world, look set to drive US-bound investment to new heights. And this growth is likely to accelerate further as a result of the depreciation of the US dollar against the Indian rupee. Five years ago one US dollar was worth around Rs48.43. Today it is worth just Rs39.80.

Daniel M Davidson is a partner in the Washington DC office of Hogan & Hartson LLP. Andrea A Ramezan-Jackson is an associate.