French Companies Acquiring Indian Operations: DTAA, CGT & Legal Process

India-France Acquisitions: A Transformed Tax and Regulatory Landscape

France is one of the largest European investors in India, with major French multinationals—Capgemini, L'Oreal, Sanofi, Accor, Pernod Ricard, Danone—operating substantial Indian businesses. On 23 February 2026, India and France signed an Amending Protocol to their bilateral Double Taxation Avoidance Convention (DTAC), overhauling the three-decade-old agreement originally signed in 1992. This fundamentally changes the tax calculus for French companies acquiring Indian operations.

The revised framework expands India's right to tax capital gains on share sales, introduces tiered dividend taxation, and eliminates the Most-Favoured-Nation (MFN) clause. For French acquirers, understanding these changes—alongside India's multi-layered regulatory approval process involving the CCI, SEBI, and RBI—is essential to structuring deals efficiently. For a detailed comparison of the old and new treaty terms, see our India-Germany DTAA vs India-France DTAA comparison.

Revised India-France DTAA: Capital Gains Tax Changes

The Old Regime (Pre-Amendment)

Under the original 1992 treaty, India could only tax capital gains on share transfers when the French entity held more than 10% of the Indian company. This meant French portfolio investors holding less than 10% could sell Indian shares without Indian tax liability—taxing rights stayed exclusively with France.

The New Regime (Post-Amendment)

The Amending Protocol provides full taxing rights to India on capital gains arising from the sale of shares of an Indian company, regardless of the size of the French entity's shareholding. This is a fundamental shift:

Applicable Indian Capital Gains Tax Rates (2025-26)

Once India has taxing rights, domestic tax rates apply:

French acquirers must factor these rates into deal structuring. For unlisted company acquisitions—the most common M&A scenario—the holding period threshold is 24 months for long-term treatment.

Dividend Taxation: Tiered Rates Replace Flat 10%

The revised DTAA replaces the single 10% withholding tax rate on dividends with a split structure:

This is a significant benefit for French parent companies with substantial Indian subsidiaries—their dividend withholding drops from 10% to 5%. However, minority French investors now face a higher 15% rate. The dividend paid by the Indian company is also subject to Indian corporate tax at the standard rate before distribution.

Elimination of the MFN Clause

The revised treaty eliminates the Most-Favoured-Nation clause entirely. Previously, French investors could claim lower rates that India offered to other OECD countries. The Supreme Court of India had already ruled (in the Assessing Officer vs Nestle case, 2023) that MFN clauses don't apply automatically without a government notification. The treaty amendment now removes any ambiguity.

The Acquisition Process: Step-by-Step Legal Framework

Step 1: Due Diligence and Structuring

Before executing any acquisition agreement, French acquirers must conduct comprehensive due diligence covering:

• Legal and corporate: Company charter documents, Memorandum of Association, Articles of Association, board resolutions, shareholder agreements
• Financial and tax: Audit reports, tax assessments, pending tax disputes, transfer pricing compliance
• FEMA compliance: Past FDI filings, FC-GPR/FC-TRS compliance history, RBI approvals
• Sector-specific: Verify that the target's sector permits 100% FDI under the automatic route, or determine if government approval is required

The structure decision—share purchase vs asset purchase vs merger—has significant tax and regulatory implications. Share purchases are the most common for inbound M&A because they are simpler from a regulatory standpoint and preserve the target's licenses, contracts, and permits.

Step 2: Share Purchase Agreement (SPA)

The SPA governs the commercial terms of the acquisition. Key provisions for cross-border deals include:

• Purchase price with FEMA-compliant pricing (at or above fair market value for unlisted companies)
• Representations and warranties from the seller
• Indemnification provisions for pre-closing liabilities
• Conditions precedent—including regulatory approvals from CCI, SEBI (if listed), and RBI (if government route applies)
• Non-compete and non-solicitation clauses
• Tax gross-up provisions for withholding tax obligations

Step 3: CCI Merger Notification

The Competition Commission of India (CCI) must approve all acquisitions that cross specified financial thresholds. Key points:

• Asset/turnover test: Mandatory notification if combined assets exceed Rs 2,000 crore (India) or Rs 8,000 crore (global); or combined turnover exceeds Rs 6,000 crore (India) or Rs 24,000 crore (global)
• Deal value test (new): Since September 2024, deals with transaction value exceeding INR 2,000 crore require CCI approval if the target has "substantial business operations" in India—defined as Indian turnover exceeding 10% of global turnover or INR 500 crore
• Timeline: CCI must complete its review within 150 days (reduced from 210 days). Most deals receive approval within 30-45 days under the Green Channel route for non-overlapping businesses
• Filing fee: INR 20 lakh for Form I (short form) or INR 65 lakh for Form II (detailed notification)

Step 4: SEBI Open Offer (Listed Companies Only)

If the target is a listed Indian company, the SEBI Takeover Regulations apply:

• Acquiring 25% or more triggers a mandatory open offer to public shareholders for at least 26% of shares
• Creeping acquisition of more than 5% in a financial year also triggers an open offer
• The acquirer must make a public announcement within two working days of executing the SPA
• The offer price must be at least the highest of: volume-weighted average market price, the SPA price, or the highest price paid by the acquirer in the previous 52 weeks

Step 5: RBI/FEMA Compliance

All cross-border share acquisitions require FEMA compliance:

• FC-TRS filing: The seller must file Form FC-TRS within 60 days of the share transfer for secondary market transactions (share transfers between a resident and non-resident)
• Pricing compliance: Shares of unlisted Indian companies must be transferred at or above fair market value as determined by a SEBI-registered Category I Merchant Banker or Chartered Accountant
• Sectoral clearances: If the target operates in a sector requiring government approval (defence, media, multi-brand retail), obtain approval from the concerned ministry through the Foreign Investment Facilitation Portal (FIFP)
• Form 15CA/15CB: Required for any outward remittance, including payment of the acquisition consideration to a resident seller. A Form 15CB certificate from a Chartered Accountant is mandatory for payments exceeding Rs 5 lakh.

Step 6: Post-Acquisition Filings

After closing, the acquiring French company must complete:

• ROC filings: Update directors, shareholders, and share transfer details with the Registrar of Companies
• Tax filings: Section 195 TDS compliance on capital gains payable to non-resident sellers
• FLA return: Annual census of all foreign liabilities and assets, due by July 15
• Transfer pricing documentation: Mandatory for all related-party transactions between the French parent and Indian subsidiary

Due Diligence Priorities Specific to French-India Deals

FEMA Compliance History

Indian companies with foreign shareholders often have gaps in historical FEMA compliance—missed FC-GPR filings, delayed FLA returns, or pricing irregularities in past share issuances. These create contingent liabilities that can result in compounding penalties of up to three times the amount involved. French acquirers should insist on a dedicated FEMA compliance review as part of due diligence.

Transfer Pricing Exposure

If the target Indian company has been transacting with related parties—particularly if it was previously owned by another multinational—scrutinize the transfer pricing documentation. The Indian tax authorities are aggressive on transfer pricing adjustments, and pending TP assessments can result in substantial additional tax demands plus interest at 12% per annum.

Employee and Labour Law Compliance

Indian labour laws are complex and vary by state. Key areas to review include: Provident Fund contributions (12% of basic salary), ESI compliance for employees earning below INR 21,000/month, gratuity liability for employees with 5+ years of service, and any pending labour disputes or union-related issues. Non-compliance creates successor liability for the acquirer.

Intellectual Property Ownership

Verify that all IP assets—patents, trademarks, copyrights, domain names—are properly registered in the Indian entity's name. In many Indian companies, IP is held informally by founders or registered in personal names rather than the company's. This requires remediation before closing.

Regulatory Timeline: Planning the Deal Calendar

French acquirers must plan their deal timeline around India's multi-layered regulatory framework. A typical acquisition timeline looks like this:

Total deal timeline from LOI to closing: typically 4-8 months for an unlisted company, and 6-10 months for a listed company with open offer requirements.

Withholding Tax Obligations on the Acquisition

When a French company pays the acquisition consideration to a resident Indian seller, Section 195 of the Income Tax Act requires the buyer to withhold tax at source on the capital gains payable to the seller. Key points:

• The withholding rate depends on whether the gains are short-term or long-term and whether the seller is an individual, company, or trust
• The buyer must obtain a Tax Deduction Account Number (TAN) and deposit TDS with the Indian tax authorities within 7 days of the month end
• The seller can apply for a lower withholding certificate under Section 197 if the actual tax liability is expected to be lower than the statutory rate
• Form 15CA/15CB must be filed for any outward remittance of sale proceeds to a non-resident seller

Tax Planning Considerations for French Acquirers

Structuring the Acquisition Price

The allocation of purchase price between shares, non-compete fees, and consulting fees has significant tax implications. Non-compete payments may be taxable as business income in India, while capital gains on shares benefit from lower LTCG rates if the holding period exceeds 24 months (unlisted) or 12 months (listed).

Holdco vs Direct Acquisition

Some French companies route Indian acquisitions through intermediate holding companies in Singapore, Netherlands, or Mauritius—jurisdictions with potentially more favourable DTAA rates. However, India's General Anti-Avoidance Rules (GAAR) and Press Note 3 restrictions must be considered. Treaty shopping through shell entities without commercial substance will be challenged by Indian tax authorities.

Stamp Duty

Share transfers attract stamp duty at 0.015% (off-market delivery-based) or 0.015% (on-market). For asset purchases, stamp duty varies by state and can range from 5-10% of property value—making share purchases significantly more cost-efficient.

French Companies Active in Indian M&A

Several French multinationals have successfully executed Indian acquisitions, providing precedent and practical guidance:

• Schneider Electric: Acquired a controlling stake in Luminous Power Technologies and has continued expanding through bolt-on acquisitions
• Capgemini: Built its 150,000+ India workforce through a combination of organic growth and strategic acquisitions, including iGate in 2015
• Pernod Ricard: Operates India's largest spirits business through its subsidiary, grown through acquisitions of Indian brands
• Sanofi: Maintains a significant Indian pharmaceutical presence through its listed subsidiary Sanofi India Limited

These transactions demonstrate that the Indian M&A framework, while complex, is well-established and navigable with proper planning. For guidance on structuring your India acquisition, explore our FDI advisory services and FEMA-RBI compliance support.

Key Takeaways

• Revised DTAA expands India's taxing rights: India can now tax capital gains on all share sales by French entities, regardless of shareholding percentage. The 10% threshold has been eliminated.
• Dividend withholding drops for large investors: French parent companies with 10%+ stakes benefit from a reduced 5% withholding rate (down from 10%). Minority investors face a higher 15% rate.
• Multi-layered regulatory approvals: Acquisitions may require CCI approval (150-day timeline), SEBI open offer compliance (listed targets), and RBI/FEMA filings. Plan for 3-6 months of regulatory process.
• Capital gains tax rates: Listed LTCG at 12.5%, unlisted LTCG at 12.5% (24-month holding), listed STCG at 20%, unlisted STCG at slab rate. Factor these into deal economics.
• Post-acquisition compliance is extensive: Annual transfer pricing documentation, FLA returns, Section 195 TDS, and ongoing FEMA reporting are mandatory for the acquired Indian entity.