AROUND THE WORLD IN 75 MINUTES: ROUNDTABLE DISCUSSIONS ON OPERATING IN INDIA

Vinita Bahri-MehraKegler Brown Hill + Ritter Co., L.P.A.

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Higher Education in India

• Higher education offerings are Diploma Courses, Bachelor’s/Undergraduate Degrees, Master’s/Post-Graduate Degrees and Pre-Doctoral Programs.

• Higher education regulated at both National and State levels.

• An educational institution in India needs to be setup in the form of a Trust, Society or a Section 8 Company (aka Section 25 Company).

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Regulatory Governance

Higher Education

Technical Education

Non-Technical Education

University Grants

Commission (UGC)

All India Council for Technical Education (AICTE)

which hasForeign

University Regulations

Distance Education Council (DEC)

Statutory Councils (e.g., the MCI, BCI)

UGCDEC

GOVERNED BY GOVERNED BY

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Regulatory Governance

Higher Education Avenues

UniversitiesDeemed

Universities Colleges Private Universities (Unitary Institute)

UGC UGC

UniversitiesAICTE

Established by a State Act, which

may require compliance with UGC & AICTE

Rules

GOVERNED BY

GOVERNED BY

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Some Educational Delivery Models in India – Strategic Academic Models

• Education Services• Franchising• Distance Learning Arrangements• Twinning Arrangements• Vocational Training• Tutoring and Test Preparation Services

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Key Legal Issues

• Are non-compete and non-solicitation clauses applicable?• Contract enforcement?• What is the tax incidence on profits and gains and

whether any tax breaks are provided by government? Are repatriation of investments and profits allowed?

• Are there any labor issues to consider?• What should be done to protect one’s IP?• What law should govern the contract and which courts

should have jurisdiction to adjudicate on disputes?• What mechanism of dispute resolution is preferable?

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Key Legal Issues

Intellectual Property (IP) Protection:• Trademark registration.• Separation of IP issue:

– If a joint trademark is created separation of brand in case of divorce between US University and Indian University would be tricky; and

– ownership of such joint trade mark?– If new IP is created, based in whole or in part on the

IP that was licensed, who owns it? How will it be used?

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Key Legal Issues

Copyright of Materials:• Because of Berne Convention, US University’s

registered copyright material created in U.S. is automatically protected in India. However, need to evaluate: – if US University’s materials are amended upon inputs from

Indian University, who will own such amended materials; and

– whether materials fully developed with inputs from Indian University would be owned by Indian University or US University.

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Key Legal Issues

Contracts:• Trade-Secrets and Confidential Information protection

through confidentiality agreements.• Structure arrangements to ensure protection of equitable

rights (e.g., non-compete, exclusivity, right of first refusal & indemnification).

• Dispute Resolution and Governing Law.• Termination/Exit Strategy.• Litigation vs. Arbitration.• Protecting Account Receivables: Standby irrevocable Letter of

Credit, Bank Guarantees and/or Indemnification.

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Key Legal Issues

Contract Negotiations:

• Negotiations: Contract negotiations can be expected to go more slowly in India – particularly if dealing with India bureaucracy.

• Different Approach to Communication: Indian parties may not disagree with you directly about contractual issues. Instead, they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response.

• Flexibility: It is recommended that U.S. Universities build considerable flexibility into their approach so that prices and other contract conditions can be adjusted.

• Believe: Relationships and respect. Building a lasting and trusting relationship is very important for a successful business venture in India.

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Key Legal Issues• US Tax Issue: Unrelated Business Income Tax (UBIT) – IMPACT?

• Exchange Control Regulations: Compliance with Reserve Bank of India’s (RBI) Exchange Control Regulations – Repatriation of Funds.

• Labor Laws:– “At will” employment is recognized.– Compliance required at federal and state levels.– Enforceability of non-compete and non-solicitation. Post-termination of

employment is difficult.

• Due Diligence: Legal, financial and structuring of transactions.

• Be Prepared For Ongoing Regulatory/Statutory Compliance

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Key Legal Issues

Taxation• Dividends declared can be repatriated freely through an

authorized Indian bank. • Dividends are tax-free in the hands of shareholders.

– A distribution tax of 16.66% is payable by company.• Corporate tax rate for foreign companies is 41.2%. For

domestic companies, 30.99%.• Withholding tax on royalties/technical fees/interest income.

– Domestic tax law – 10% [effective AY 2014-2015, it will become 25%].

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Key Legal Issues

Taxation• Indo-US DTAA – 10% for right to use of any

industrial, commercial or scientific equipment.– 20% in any other case. (First five years of agreement).– 15% in any other case (subsequently).– Computed on “gross amount”.

• Submission of a Tax Residency Certificate (TRC) a must.• Furnishing of PAN required to receive payments.• Currently, tax rate of domestic law could be utilized

as it is less than DTAA.

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Key Legal Issues

Taxation• Service tax rate is 12.36%

– Computed on the “Gross Amount” charged by the service provider.

• Sales Tax Rate (VAT): Varies from state to state, depending upon classification of goods. Two basic rates are 5% and 14.5%.

• Sales Tax Rate (CST): Levied at 2%

• Excise Tax: Imposed on goods manufactured locally. Varies from 8-10% – 12%.

• Custom Duties: – Peak rates reduced from 350% (June 1991) to an average

10% currently for some products.

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Key Legal Issues

Important Taxation Issues

• India’s tax code has elaborate Transfer Pricing Regulations.

• All entities having an aggregate value of international transactions in a financial year exceeding INR 15 crs (i.e. approx. US $3.3 mn) subject to compulsory transfer pricing scrutiny by the Indian tax authorities.

• Rules govern minimum profit margin to be maintained by Indian companies in transactions involving associate enterprises

• Avoidance of Permanent Establishment (“PE”) status is critical.

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International PartnershipsConclusion

• Although India’s existing educational regulations appear regressive, government’s intent to open up the education sector for investment and collaboration is progressive.

• Institutions must approach their relationship-building initiatives with care. All too often, universities sign a Memorandum of Understanding without devoting the appropriate resources or energies to sustain effective collaborations.

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International PartnershipsConclusion

• Universities should think about how strategic alliances may fit in with their larger vision and goals for the future, seek out best practices in identifying partners, and in designing, executing, growing and evaluating programs.

• THINK GLOBAL! ACT LOCAL! -- It’s important to bridge the gap between US academia and local country’s education industry practices.

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Legal Advice

This presentation is designed to provide an overview of a number of legal principles and considerations.

As each legal issue is fact dependent, this presentation should not be used or viewed as legal advice, and your legal counsel should be consulted on the application of your particular factual situation to the current law.

Copyright: 2014 Kegler Brown Hill + Ritter Co., L.P.A.

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Thank You

Vinita Bahri-Mehra, Esq.Director & Chair, Asia Pacific PracticeKegler Brown Hill + Ritter Co., L.P.A.65 E. State Street, Suite 1800Columbus, Ohio 43215, USA

Direct Dial: 1 614 225 5508Fax: 1 614 464 2634Email: vmehra@keglerbrown.comWeb Address: www.keglerbrown.com