We never filed the annual performance report, how bad is it?
The unhelpful part is that it is not one lapse. Because the reporting runs for the life of the investment, each year the report was not filed is a gap of its own, and the earliest is the one that has been outstanding longest. So the exposure grows with the number of years rather than with the size of the investment. The practical answer is that the arithmetic matters less than the sequence: what can be supported, from which year, and in what order it goes in. That is decided from the foreign entity's accounts, and assembling those is usually what takes the time.
Does a loss-making overseas subsidiary reduce the exposure for late filing?
No. The reporting is about the existence and performance of the investment, not about whether it made money, so a subsidiary that has lost money every year since incorporation has exactly the same filing history to put right as a profitable one. If anything the loss-making cases are worse, because nothing ever happened to prompt anyone to file: no distribution, no Indian tax to pay, no accountant asking questions. The years accumulate quietly, and the first person to notice is often a lender or a buyer.
Can we sell the overseas subsidiary with reporting still outstanding?
A disposal has its own reporting, and filing it on top of years of missing annual reports draws attention to the gap rather than closing it. The sale also tends to impose the deadline, because a buyer's diligence asks for the regulatory file and then the price or the completion date starts to depend on it. Where the timetable allows, the outstanding years go in first and in order, so the disposal report is the last entry in a complete history instead of the only entry in an empty one. Where it does not allow that, the position is at least quantified and disclosed before completion rather than after.
Will cleaning up late ODI filings raise questions about our Indian returns?
It can, and that is a reason to prepare both together rather than a reason to delay. The regulatory reporting and the tax treatment of the foreign entity's income draw on the same accounts and the same shareholding history, so once the reporting describes several years accurately, the returns for those years have to be consistent with it. We would rather find that ourselves. The order of work is to build the accounts and the holding history first, then settle the tax position for each year, then file the reports that describe it, so the two records agree on the day they are both filed.
What order should we file several years of missed reports in?
Earliest first. Each year's report describes a holding as it stood at that point, and the opening position for one year is the closing position of the year before, so filing out of order produces a history that contradicts itself and invites questions about the years you have already put right. Working forwards also forces the evidence question year by year: which accounts exist, what the holding was, what changed. Where a year genuinely cannot be supported, that is far better identified as a gap in a chronology than discovered later inside a filing that asserted it.
Does it matter which route the original investment was made under?
It changes what the late reporting has to be supported by. An investment made under the approval route carries a permission with terms attached, and the reports that follow it are read against those terms, so the first job is finding the original approval and establishing what it actually permitted. On an investment made a long time ago that is rarely quick. Where approval was not needed, the evidence is the commercial file instead. Either way the documentation work is the part that takes the time; the filings themselves are short.
Is double taxation illegal?
It is legal. Two countries can each have a valid claim on the same income — one because the income arose there, the other because you live there — and nothing prohibits both from exercising it. What exists instead is relief: tax treaties allocate the claim, and domestic law gives a credit for foreign tax paid. The relief is not automatic, though. It is claimed on a return, and unclaimed relief is simply lost. See how double taxation is relieved.
What is double tax relief and how is it given?
Three mechanisms, and which one you get depends on your residence country's law and the treaty. Exemption leaves the foreign income out of the residence-country base. Credit taxes it and then subtracts the foreign tax, capped at the residence-country tax on that income. Deduction merely reduces taxable income by the foreign tax, and is usually the weakest. Canada and the United States lead with credit; several treaties give exemption for specific income types. See claiming the credit.
