XYZ Ltd is a company incorporated in the United States (US) that wants to invest USD 20,000,000 in an Indian entity to acquire 200,000,000 shares. US and India do not have any tax treaty. However, the US does have a tax treaty with the Cayman Islands and Mauritius and these countries have each a treaty with India. The tax rates in the various countries are shown below: US tax Law:

Cayman Islands tax law Set up cost USD 5,000 Annual fees USD 100,000.00 Corporate tax at 5% Withholding tax of 3% on dividend Capital gain tax is zero percent Income Tax Bracket Tax Rate Capital Gains Rate $0 $9,700 10% 0% $9,701 $39,375 12% 0% $39,376 $39,475 12% 15% $39,476 $84,200 22% 15% $84,201 $160,725 24% 15% $160,726 $204,100 32% 15% $204,101 $343,550 35% 15% $343,551 $510,300 35% 20% $510,301+ 37% 20%

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Mauritian tax law Set up cost USD 3,000 Annual fees USD 30,000 Corporate tax 15% The dividend is an exempt income (From abroad: taxable) The capital gain tax applies to the sale of land at 15%. Indian tax law Corporate tax is 30% Withholding tax is 15% The capital gain tax is 15% The tax treaties which exist between the various countries are shown below: Tax treaty between US and the Cayman Islands Withholding tax of 5% on dividend paid The capital gain tax of 10% on disposal of the shares A company must spend USD 20,000 per annum to benefit from tax treaty advantages. Tax treaty between US and Mauritius Withholding tax of 10% on dividend paid The capital gain tax of 15% on disposal of the shares Tax treaty between India and the Cayman Islands Withholding tax of 10% on dividend paid The capital gain tax of 10% on disposal of the shares

Tax treaty between India and Mauritius Withholding tax of 3% on dividend paid The taxpayer will have the right to decide in which country, they want to pay capital gain tax A company must spend USD 20,000 per annum to benefit from tax treaty advantages. They have contacted you as a tax planning expert to propose to them the best way to invest in India. The company is expected to earn a dividend of USD 1,000,000 in the fifth year. Assume net profit after tax can be declared as a dividend in each country.

REQUIRED

(a) To calculate the total tax paid including that in USA if the company decides to use the Cayman Island route.

(15 Marks)

(b) To calculate the total tax paid including that in he US if the company decides to use the Mauritian route.

(15 Marks)

(c) To calculate the net impact if XYZ Ltd decides to invest directly.

(10 Marks)