Reverse Flipping: Unveiling the Economic Survey's Concept

The concept of Reverse Flipping has been recognized in the Economic Survey 2023-24, and it has garnered significant attention in recent times.

A number of startups with substantial funding, such as Pine Labs and Udaan, are contemplating the idea of moving their holding companies to India. This emerging trend, known as "reverse flipping," is driven by factors such as stricter regulations, plans for potential IPOs, and the preference to operate within the domestic market.

What is Reverse Flipping ?

So, Let us look at What is Flipping and What is Reverse Flipping.

Flipping

Flipping refers to the complete transfer of ownership of an Indian company to an overseas entity, including the transfer of intellectual property rights and data owned by the Indian company. This process effectively converts the Indian company into a wholly-owned subsidiary of the foreign entity, while the founders and investors maintain their ownership through the foreign entity by exchanging all shares.

The Reserve Bank of India (RBI) has recognized the practice of flipping, as stated in the Foreign Exchange Management (Overseas Investment) Rules and Regulations, 2022.

There are several reasons why companies opt for flipping:

1. Taxation benefits: Flipping allows companies to take advantage of favorable tax regulations in foreign jurisdictions, potentially reducing their tax liabilities.

2. Ease of setting up in Foreign locations: These countries offer a business-friendly environment and streamlined processes for company formation, making it easier for companies to establish their presence.

3. Attracting foreign capital: Flipping can make it more attractive for foreign investors to inject capital into the company, as it provides them with a familiar legal and regulatory framework.

By engaging in flipping, Indian companies can leverage these advantages to enhance their global competitiveness and expand their operations internationally.

Reverse Flipping

Reverse flipping refers to the practice of overseas startups relocating their headquarters to India and subsequently listing on Indian stock exchanges. This process can be achieved through share swaps and inbound mergers.

There are several factors that contribute to the practice of reverse flipping, including:

1. Availability of venture capital

2. Beneficial tax regulations

3. Enhanced intellectual property safeguarding

4. Supportive government policies

5. Expanding domestic market

The Way Forward

The Economic Survey for the fiscal year 2023-24 has put forward a series of recommendations. These include streamlining the complex tax structure and addressing the uncertainties arising from tax disputes.

Additionally, the survey suggests simplifying the procedures related to capital flows. It highlights that several countries, such as the United States and Singapore, have more lenient corporate laws and fewer restrictions on the movement of capital.

The survey also emphasizes the importance of fostering strong partnerships with private entities to promote the development of best practices and cutting-edge start-up mentorship platforms.

Furthermore, it advocates for exploring the incubation and funding opportunities available for start-ups in emerging fields like social innovation and impact investment.