CORPORATES FIND NEW ROUTE TO SAVE ECB TAX

Corporate acquisitions in India are setting a new trend in raising funds through the External Commercial Borrowing (ECB) route and at the same time saving on the withholding tax. Domestic Airlines, which are in the process of raising funds overseas to purchase aircraft, are planning to opt for lease financing rather than a direct purchase. Towards this, the airliner and its consortium of lenders are setting up a Special Purpose Vehicle (SPV) in a foreign country which would lease the aircraft to the airliner. The SPV would help airliner avoid paying withholding tax (which is imposed by the government on the borrowings raised by domestic corporates from foreign banks) on overseas
funds arranged. This is because the SPV will be launched by the lenders in such a country from
where leasing aircraft to Indian companies are exempt from withholding tax.