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Part - III

It is notable that the domestic dividends are tax-exempt in the hands of the shareholders while foreign dividends are fully taxable. This means that the IDR holders would have to pay tax in India on the same. So before investing, one must interpret the tax implications of investing in IDRs.

Regarding the voting rights of the IDR holders there has been no rule stipulated in the norms. That is again a gray area in the IDR investment. The accounts of the issuing company will have to be recast according to SEBI's guidelines or the listing agreement, so that it corresponds with Indian Accounting Practices and is easier for investors to understand.

There are some problems in the development of IDR. The IDR rules can be considered an important step in the direction of India's global economic integration because by doing this, India seems to have opened its stock markets to foreign companies. However, the rules and regulations that have been laid down for foreign companies entering the stock markets look restrictive.

We can say that the DCA has probably aimed a bit too high by asking for a five-year dividend paying history and a very low debt-equity ratio. As s result of this some companies like Exxon Mobil Corp., General Electric Co., General Motors, HP, and Microsoft, etc are ineligible to issue IDRs. Further, the criteria of declaration of dividends may reduce the eligibility of most companies and it may pose a problem for foreign companies because in the US, it is not common for companies to declare dividends; generally all the profits of the company are reinvested in the company.

Secondly, as the law states that IDRs have to be listed either on NSE or BSE, currently privately placed IDRS are not possible in India. The rules provide that repatriation of proceeds of the IDRs issue shall be subject to foreign exchange regulations. This means that specific permission of the MoF has to be sought for repatriation of the proceeds. Redemption of IDRs would not be possible for a year.

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* Contributed by -
Anand Dalmia & Aditya Khemnai,
PGDM - II Year,
IIM Lucknow.