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PhonePe Reverse Flip to India: Unraveling the Strategic Shift and its Impact

PhonePe Reverse Flip to India: Unraveling the Strategic Shift and its Impact

First Published on 21st August, 2023

The Reverse Flip

What is Reverse Flip?

“Reverse flip” or “re-domiciliation” refers to a corporate restructuring process in which a company changes its country of domicile or legal registration from one jurisdiction to another.

 

Background

  • PhonePe was incorporated in 2015 in India
  • In April 2016, PhonePe was acquired by Flipkart. As part of the acquisition, PhonePe flipped its structure to Singapore
  • In 2018, PhonePe became a part of Walmart after it acquired Flipkart
  • In October 2022, PhonePe announced that it has moved its domicile to India (reverse flip) for following key reasons:
    • PhonePe wants to focus on India markets for the next couple of decades. PhonePe is a digital payments company that operates primarily in India. By redomiciling to India, PhonePe can be more responsive to the needs of its customers and partners.
    • The Indian government has been tightening regulations for digital payments companies in recent years. By redomiciling to India, PhonePe can be more easily compliant with these regulations.
    • To be better positioned for an IPO. PhonePe is expected to go public in the next few years

What Happened?

Steps undertaken

  • PhonePe moved all businesses and subsidiaries of PhonePe Singapore to PhonePe India directly
  • PhonePe created a new ESOP plan at India level and migrated all group employees to this new plan
  • IndusOS, owned by PhonePe, also shifted operations from Singapore to PhonePe India

 

Key Consequences of Reverse Flip to India

  • Lapse of accumulated losses of USD 900 million
    • PhonePe stands to lose the chance to offset its USD 900 million (~INR 7,380 crore) of accumulated losses against future profits as shifting the domicile from Singapore to India is viewed as a restricting event under Section 79 of the Income Tax Act, 1961
    • As per the provisions of Section 79, a company is not allowed to carry forward the losses if the change in beneficial ownership of shareholding of more than 50% occurred at the end of year in which losses were incurred
  • Reset of ESOPs to zero vesting with 1 year cliff
    • All employees of PhonePe were migrated to the new India level ESOP plan which stipulates a minimum 1 year cliff.
    • Thus, the employees vesting status was reset to zero with a 1 year cliff

  • Tax payout by investors of almost INR 8,000 cr
    • PhonePe investors, led by Walmart, sold their stake in the Singapore entity and invested in PhonePe India
    • This means that there was a capital gains tax event in India for the the investors leading to a tax-pay-out of almost INR 8,000 cr

Other Startups looking at Reverse Flip

  • Razorpay is in process to move its parent entity from the US to India
  • Groww is planning to move its domicile from the US to India
  • Pepperfry has reverse flipped their structure to India via amalgamation

   

Source:

https://economictimes.indiatimes.com/tech/technology/phonepe-shifts-headquarters-from-singapore-to-india/articleshow/94621544.cms

https://www.bqprime.com/business/after-phonepe-razorpay-kicks-off-reverse-flipping-process

https://www.youtube.com/watch?v=MFjh0rp_dbM

https://en.wikipedia.org/wiki/PhonePe#:~:text=10%20External%20links-,History,the%20CEO%20of%20the%20company

https://inc42.com/features/unicorn-desh-wapsi-reverse-flipping-is-the-new-startup-sensation/

   

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Disclaimer – The content of this document is for information purpose only and does not constitute advice or a legal opinion. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer to relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc. before acting on the basis of this write up. The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that the Treelife is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof.

Last Updated on: 7th December 2023, 05:08 pm


Disclaimer:

The content of this article is for information purpose only and does not constitute advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer to relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc. before acting on the basis of the above write up. The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that the Author / Treelife is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof.

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