Engineering, Procurement, Construction (EPC) Challenges made easy www.nangia-andersen.com
Engineering, Procurement,Construction (EPC)Challenges made easy
www.nangia-andersen.com
EPC - challenges made easy | 1
3
4
5
6
6
7
9
11
Contents About Us
EPC-An introduction
Indian Context
Typical Components
Typical Project Structures
Indian Regulatory & Tax – Landscape & Challenges
o Regulatory
o Corporate Tax
o Transfer Pricing
o Indirect Tax
Service Offerings
o Advisory Services
o Implementation & Compliance services
EPC - challenges made easy | 2
EPC - challenges made easy | 3
About UsNangia Andersen LLP is a premier professional services organization offering a diverse range of Entry strategy, Taxation, Regulatory and Transaction Advisory, Accounting & Compliances services. We are an Andersen Global tax consulting and advisory firm in India. As part of Andersen Global we have reached more than 200 offices globally, having presence in more than 100 countries. In India, Nangia Andersen LLP has a PAN-India coverage, with offices in Noida, Delhi, Gurugram, Mumbai, Dehradun, Bengaluru, Chennai, and Pune. Nangia Group has been in existence for around 40 years and has been consistently rated as one of the best tax and regulatory advisors in India.
Quality of our people is the cornerstone of our ability to serve our clients. For this reason, we invest tremendous resources in identifying exceptional people, developing their skills, and creating anenvironment that fosters their growth as leaders. From our newest staff members through senior partners, exceptional client service represents a dedication to going above and beyond expectations in every working relationship.
We strive to develop a detailed understanding of our clients’ business and industry sector, to offer insights on market developments and assist our clients develop effective strategies and business models. We have the resources and experience necessary to anticipate and competently serve our clients on issues pertaining to all facets of Accounting, Tax and Regulatory services. We take pride in our ability to provide definite advice to our clients with the shortest turnaround time. The business and tax landscapes have changed dramatically, and the pace and complexity of change continues to increase. We can assist in navigating this shifting landscape.
EPC- An IntroductionAn EPC contract encompasses the following key activities:
Engineering
Project definition, preparation, and feasibilityDesigning and detailing technical specificationsPreparation of performance standards, maintenance, and
training manualsProject and construction managementDocumenting deliverables etc.
Construction
Erection, supervision, commissioning, testing and completion of the facility
Safe and efficient completion with quality controlsCorrection of defects
Procurement
Sourcing equipment and spare parts - inviting bids, negotiations, and vendor finalization
Procurement/ import from third parties - regulatory clearances and quality checks
Vendor management and internal controlsDelivery to the site, efficient usage, and control checks
EPC contracts predominantly have acombined scope of work involvingservices and supplies and are commonin sectors such as:
rgy
Telecom
EPC - challenges made easy | 4
Indian Context
The Indian growth story has attracted a lot of interest across the globe and the same extends to the EPC industry, which is likely to witness even more global players entering the dynamic Indian market in the times to come.
To achieve the GDP of $5 trillion by 2024-25, India needs to spend about $1.4 trillion (INR 100 lakh crore) over these years on infrastructure. To achieve this objective, a Task Force was constituted to draw up the National Infrastructure Pipeline for each of the years from FY 2019-20 to FY 2024-25, with the approval of the Finance Minister. The Task Force submitted its final report for the fiscal years 2019-25 to the Finance Minister on April 29, 2020. During the fiscals 2020 to 2025, sectors such as Energy round 70% of the projected capital expenditure in infrastructure in India.
Given the focus of the Indian Government on infrastructure spending, the Indian EPC sector is bound to grow at a rapid pace and global players are likely to play an important role in the specialized EPC sectors.
However, the growth in the sector is coupled with various challenges which range from regulatory and tax ambiguities, funding concerns, collaborations with global companies, and execution issues. In view of the present dynamics, many players are focusing more on core competencies and improve profitability by controlling costs and ensuring timely completion of projects with highest qualitystandards.
EPC - challenges made easy | 5
EPC - challenges made easy | 6
Typical Project StructuresThere could be variety of structures which can be used from a supply chain perspective for executing an EPC contracts depending on the requirements of project.
Unincorporated Incorporated
Joint Venture (JV)/ Consortium
re in India
re in India
Incorporated Entities
r ffice in India
Typical Components
OffshoreSupply
OnshoreSupply
OffshoreServices
OnshoreServices
EPC - challenges made easy | 7
Indian Regulatory & Tax -Landscape & Challenges
rns in the EPC industry, is the time involved in obtaining regulatory approvals including various licenses, regulatoryclearances, acquisition approvals, importation delays etc., delaying the project and causing cost overruns.
Some key issues:
Approval requirements where contract is between twozForeign Companies
Separate bank accounts for each project
o Approval requirements to maintain single bank where there are multiple contracts awarded and executed by Foreign Company
Approval requirement for receiving contractual receipts in offshore account of parent company/ head office
Separate accounting for each project for Reserve Bank of India purposes
Regulatory
India has a complex tax environment wherein tax ambiguities, time involved in tax assessments / litigation results in considerable tax exposures / resultant tax costs for EPC projects in India. Even though continuous amendments in the tax legislation, have taken place over the years,considerable efforts are required to obtain added clarity in the tax positions for the industry.
Some key issues:
Taxability of the consortium – Association of Persons
Permanent Establishment (‘PE’) exposure in India
Taxability of offshore supplies
Withholding tax on offshore payments
Deductibility of expenditure incurred by head office/ consortium members
Personal / Expatriate taxation
General Anti-Avoidance Rules (‘GAAR’) provisions
Corporate Tax
EPC - challenges made easy | 8
Indian Regulatory & Tax -Landscape & Challenges (Contd.)
Transfer pricing regulations in India have emerged as one of the most important and critical areas of tax planning and tax controversy for global corporates operating in India. Accordingly, it is important to benchmark transactions between Associated Enterprises (AEs) from the arm’s length perspective, to comply with the Indian transfer pricing regulations. In terms of EPC contracts, transfer pricing regulations would be relevant in various transactions.
Some key issues:
Split of consideration between offshore work and onshore work
Attribution of profits to the PE in India
Procurement of goods/services from related parties
Supply of manpower/ technicians etc.
Transfer Pricing
Indirect taxes in India include Customs duty, Goods & Services Tax (GST), and local levies such as Building Cess, Professional Tax etc. These taxes have a direct impact on the project costs. It is extremely important to ensure that the structure allows smooth credit flow of creditable taxes and at the same time appropriate exemptions and concessions are claimed to reduce the costs especially in relation to non-creditable taxes and duties.
Some key issues:
Identifying the Harmonized System of Nomenclature (HSN) code,
especially in case of import of goods and for provision of services
Availability of exemption/concessional rate of customs duty
Availability of exemptions under GST
Classification of contract for GST purposes – works contract, composite
supply etc.
Non-utilization or accumulation of input taxes, optimization of input taxes
Incentives under the Foreign Trade Policy
Indirect Tax
Service Offeringsy and implementation support,
throughout the entire life cycle of a project, starting from project preparation stage to the completion of the project.
Some of our key EPC specific service offerings are as under:
a. Advisory Services
Project Life Cycle
PrepatoryStage
EPC - challenges made easy | 9
Pre Bid Stage
Project planning
Contract structuring
Investment/ funding structuring
Strategizing cross border transaction
Review of bid documents from tax perspective
Structuring, strategizing and assessing EPC business model
Tax optimastion and risk assessment
Tax cost modelling & optimisation of input tax credits
1 2
Post Bid Stage
EPC - challenges made easy | 10
3 4
CompletionStage
Assessment of completion reports
Cash repatriation
Regulatory support for exit strategy
Re-export benefits
Set up tax efficient structure
Compensation structuring
Review and structuring of contracts from income, transfer pricing, custom duty and GST perspective
Structuring of the intra group transactions
Transfer pricing planning study and analysis
Accounting advisory services
Time to time support services
Project Life Cycle
EPC - challenges made easy | 11
b. Implementation & Compliance Services
regulatory approvals/ clearances
Pr ffice set-up
Incorporation of Company or Limited Liability Partnership in India
registrations under corporate law, exchange control regulations and various local laws such as labour laws, shops & establishment law etc
w, exchange control regulations, and other local laws
Registration of expatriate employees with For f
Payroll processing for domestic and expatriate employees
Tax filings for employees
Representations for assessments and other matters
Regulatory Employee Support
Assistance in tax registrations
Assistance in tax filings
Assistance in tax compliances including
specific matters
matters
Litigation support
Assistance in maintenance of prescribed year end transfer pricing documentation
Litigation support
Corporate Tax Transfer Pricing
EPC - challenges made easy | 12
account of taxes
concessions
Assistance in registrations and management of on-going statutory obligations/ periodic and annual compliances/ tax filings
adopted
Assistance in obtaining licenses for import of restricted items
Litigation support
Indirect Tax
EPC - challenges made easy | 13
Corporate and project finance
Coordination support
Accounting Other Services
EPC - challenges made easy | 14
DELHI(Register ffice)B-27, Soami Nagar,New Delhi-110017, IndiaT: +91 120 2598000
MUMBAI11th Floor, B Wing, PeninsulaBusiness Park, Ganpatrao Kadam Marg, Lower Parel, Mumbai400013, India | T: +91 22 61737000
BENGALURUEmbassy Square, #306, 3rd Floor, 148 Infantry RoadBengaluru, Karnataka 560001T: +91-80-2228-0999
DEHRADUNFirst Floor, “IDA” 46 E. C. Road,
T: +91 135 271 6300/301/302/303
NOIDA(Delhi NCR - Corporate
ffice) A-109, Sector 136,Noida - 201304T: +91 120 5123000
GURUGRAM812-814, Tower B, Emaar DigitalGreens Sector 61, Gurugram,Haryana, 122102T: +0124-4301551/1552/1554
CHENNAIPrestige Palladium Bayan, Level 5, 129-140, Greams Road, ThousandLights, Chennai 600006T: +91 44 4654 9201
PUNEffice number 3, 1st Floor, Aditya
Centeegra, Fergusson College Road,Next to Mantri House,Pune - 411004, India
www.nangia-andersen.com | [email protected]