Week in Insights: End of India’s Angel Tax to Draw More Investors

India has strived to position itself as a global hub for innovation and investment, and it has mainly seen positive results. Despite a downturn in 2022-23 that was part of a worldwide downturn in venture capital funding, India has emerged as the second-largest destination for VC funding in Asia.

However, the so-called angel tax introduced in 2012 had been a significant policy impediment to investment in India. The government has just abolished the tax, opening the door for more investment.

The tax applied to startups that received investments totaling more than their fair market valuation. Its aimed to curtail money laundering, but it also hampered early-stage startup funding. Angel investors invest based on the potential future value of a business, whereas the tax policy used the current value to determine investment overages.

The angel tax also added administrative and financial costs of having to potentially defend against a levy, which involve retaining valuation experts and engaging in litigation.

This put a burden on startups to steer clear of the shadow of the law, in addition to the law itself. An Indian startup would want to avoid any capital investments that could bring its investment-to-value ratio anywhere near triggering the angel tax. Failure to do so, even if it prevailed in court, would cost it in legal fees—possibly as much as the tax itself.

The end of the angel tax likely will spur investment, especially in early-stage startups where investors may have been discouraged from infusing capital. It should also enhance the attractiveness of India as a destination for international investors and venture capitalists, driving growth in the Indian startup ecosystem.

This marks an important milestone in India’s journey toward becoming a premier hub for innovation and entrepreneurship.

—Andrew Leahey

Welcome to the Week in Insights for Bloomberg Tax’s latest analysis and news commentary. This week, experts analyzed the impact of the US Supreme Court’s Loper Bright ruling on IRS efforts against partnership basis shifting, energy tax credit rules, and state tax litigation; shared estate and gift tax strategies; and more.

The Exchange—It’s where great ideas on tax and accounting intersect.

—Curated by Daniel Xu

Insights

Vanderbilt’s Beverly Moran examines anti-partnership tax shifting efforts, noting the demise of Chevron deference and other policy struggles don’t position the IRS to succeed.

Alston & Bird’s Clark Calhoun and Josh Labat analyze four tax appeals cases in Ohio, saying that the end of Chevron deference likely will embolden state-level plaintiffs.

Alliant Insurance’s James Chenoweth explains the urgency of comments on proposed energy tax credit rules, saying Loper Bright‘s impact on agency deference further complicates rulemaking.

Attorney Priya Royal shares estate and gift tax strategies, saying advisers must help their clients navigate the end of the gift tax exclusion.

Plante Moran’s Brett Bissonnette examines a pair of proposed Treasury regulations, saying the end of Chevron deference could attract lawsuits against the proposals and lead to department defeats in court.

Covington’s Lauren Ann Ross analyzes the OECD’s ICAP selection documentation requirements, saying that taxpayers concerned by the assessment’s broad scope have options.

Osler’s Amanda Heale and Kaitlin Gray analyze Canada’s Supreme Court decisions involving Dow Chemical and Iris Technologies, saying the rulings will create ambiguity over proper venues for transfer pricing challenges.

Campbell Teague’s Jordan Teague lays out a disruptive model that law firms should embrace to ditch the traditional legal structure.

Columnist Corner

Technically Speaking design by Jonathan Hurtarte/Bloomberg Tax

Improved IRS cryptocurrency enforcement would net substantial tax revenue and “have a butterfly effect on black market activities that are a drain on the economy,” Andrew Leahey writes in his latest Technically Speaking column.

Using artificial intelligence to share data and analyzing Form 1040 filings to guide audits could help address the crypto tax gap and disrupt criminal enterprises, Andrew argues. Read More

News Roundup

GOP Pushes Bill Prohibiting IRS Direct File Implementation

House Republicans aren’t giving up on their bid to halt the IRS free electronic filing program, introducing legislation that would halt its implementation. Read More

India Looks to Withdraw Digital Services Tax in New Budget

India is proposing to withdraw its version of a digital services tax on non-resident e-commerce operators in the federal 2024-25 budget. Read More

Push to Regulate Tax Preparers Struggles Despite Growing Fraud

Calls are growing louder to regulate paid tax return preparers, but lingering concerns over giving authority to the IRS to do so and whether it could stifle the industry remain a roadblock. Read More

Lowering Profits Seen as Tactic to Ease New US 15% Corporate Tax

The new corporate alternative minimum tax was designed to hold big profitable companies accountable. But it gives them wiggle room on how they report expenses on their financial statements to investors. Read More

Tax Management International Journal

KPMG’s Laurent Chetcuti, David Duffy, Esther Freitag, Agnieszka Laskowska, and Davide Morabito discuss recent value added tax rulings from the Court of Justice of the European Union.

Davies Ward Phillips & Vineberg’s Nathan Boidman discusses two tax legislations that were passed in Canada and the Moore case that was decided in the US Supreme Court on June 20, 2024.

Indian Supreme Court lawyer Ashish Goel reviews the recent Indian court ruling on a company’s entitlement to interest on refund of excess advance tax paid under the Income Tax Act.

Simmons & Simmons’ Monique van Herksen discusses her personal perspectives on the tax changes needed to accommodate the employment of nomad employees.

Career Moves

Katherine Erbeznik joined Winston & Strawn as a partner in the firm’s New York office and transactions department and tax practice.

Erika Mayshar joined Greenberg Traurig as a shareholder and chair of its tax-exempt organizations and philanthropy practice in Los Angeles and Orange County, Calif.

Kenneth Grossberg joined Gunster’s private wealth services practice as of counsel in West Palm Beach, Fla. and advises individuals, families, and business owners on tax, charitable, and estate planning.

Larry Sannicandro joined Pillsbury’s tax controversy and private wealth practices in New York.

Michelle Yarbrough Korb joined Nelson Mullins Riley & Scarborough as a partner on the affordable housing and tax credits team in Pittsburgh.

Mark Auten joined Clark Hill as a member in its tax and estate planning practice in Collin County, Texas.

If you’re changing jobs or being promoted, email your submission to TaxMoves@bloombergindustry.com for consideration.