Facility Sharing Agreements Between Group Companies of MNC is Permissible under FDI

Government today said the FDI norms for real estate will not apply in case of multi-national companies leasing out their assets to group entities. Clarifying the issue, the Department of Industrial Policy and Promotion (DIPP) said the facility sharing agreements within two group companies will not be treated as real estate business provided the arrangements are at arm’s length price

“Facility sharing agreements between group companies through leasing/sub-leasing arrangements for the larger interest of business will not be treated as ‘real estate business’ within the provisions of the Consolidated FDI policy circular of 2015,” it said.

These would be subject to the condition that “such arrangements are at arm’s length price in accordance with relevant provisions of Income Tax Act 1961 and annual lease rent earned by the lessor company does not exceed 5 percent of its total revenue,” it added.

The move would help group companies to expand their business and optimum utilisation of their assets, an official said. The clarification was issued as the department has received certain references on whether entering into such an agreements through leasing/sub-leasing arrangements within group companies for the larger purposes of business activities would be construed as ‘real estate business’.

Currently FDI is prohibited in real estate business which also covers leasing and sub-leasing. In a separate notification, government permitted foreign investments through partly paid shares and warrants in a move to facilitate FDI in the country. “The government has reviewed the provisions of the extant FDI policy…

and it has been decided to allow partly paid shares and warrants as eligible capital instruments for the purposes of FDI policy,” DIPP said in the notification.