Offshore IP Licensing: India Holding Company vs Singapore Subsidiary

Introduction : Today, the management and commercialization of intellectual property (IP) has become one of the most significant aspects of strategizing any multinational company (MNC) and its business. For Indian business entities expanding internationally, a persistent question pertains to the optimal location for the ownership and licensing of these IP assets of the business. Traditionally, many Indian business entities established Singapore-based subsidiaries to hold and license IP because of Singapore’s favourable tax regime, its wide treaty network, and mostly its reputation as a country allowing for stable businesses. However, India’s domestic tax reforms, strengthened anti-avoidance framework, and growing intellectual property ecosystem have significantly hindered and changed this scenario.

The India-Singapore economic corridor is particularly important in this discourse. Singapore is India’s largest source of foreign direct investment (FDI) and a preferred country for cross-border investments and licensing arrangements. However, the OECD’s Base Erosion and Profit Shifting (BEPS) project, India’s General Anti-Avoidance Rules (GAAR), the Multilateral Instrument (MLI), and Singapore’s enhanced substance requirements have fundamentally transformed and affected the offshore licensing landscape.

This essay examines the advantages of two major licensing structures: Indian holding companies (IHCs) and Singaporean subsidiaries (SingSubs), and evaluates how tax, intellectual property, and treaty developments at present have reshaped the advantages, the issues and the risks associated with each model.

The Competing Models: India & Singapore

The Indian Model : An Indian Holding Company model involves ownership of intellectual property by an Indian incorporated entity that licenses such assets to domestic or foreign affiliates. Royalties received by the Indian company are thus taxed under the Income Tax Act, 1961, and the corporate governance, regulations and relevant obligations arise as under the Companies Act, 2013. The core merit of this model lies in its simplicity. The intellectual property remains within India, which gets rid of many cross-border regulatory concerns.

When intellectual property is held by an Indian company rather than an offshore entity, it is generally viewed as more straightforward and transparent. Since the company is not using a foreign jurisdiction to access favourable tax treaty benefits, it is less likely to face allegations of “treaty shopping” (treaty shopping basically is the process of setting up entities abroad mainly to obtain tax advantages). It also reduces regulatory issues under the Foreign Exchange Management Act (FEMA) because there is no need for complex cross-border transfers of IP or royalty payments to foreign entities. As a result, the arrangement attracts less scrutiny from tax authorities under anti-avoidance provisions such as GAAR, making it a comparatively lower-risk structure.

The Singapore Model : In contrast, the Singapore Subsidiary model places ownership of IP in a Singapore-incorporated entity. The Singapore subsidiary, then in turn, licenses the IP to Indian and foreign operating companies and receives royalty income. Historically, this arrangement benefited from Singapore’s competitive tax regime, extensive treaty network, and its preferential intellectual property incentives.

The Singapore model offers greater flexibility for multinational operations and allows for centralized management of global licensing programs. The Singapore structure can offer tax and business advantages, but it also comes with greater regulatory and compliance responsibilities. Transactions between the Indian parent company and the Singapore subsidiary must comply with transfer-pricing rules, meaning that royalty rates and other payments must necessarily reflect the fair market value. The company must also satisfy the requirements of the India-Singapore tax treaty to claim treaty benefits, such as reduced withholding tax rates. In addition, Singapore requires companies to demonstrate genuine economic substance, such as actual business activities, management, and decision-making within Singapore, rather than existing merely on paper. The subsidiary must also ensure that its place of effective and proper management remains in Singapore. Otherwise, it could be treated as an Indian tax resident and become liable to Indian taxation on its global income, not covered by the Singaporean regime.

The choice between the two structures therefore depends not merely on tax rates but on broader considerations including the location of research and development activities, the source of royalty income, regulatory costs, the ability to demonstrate genuine commercial substance, and the need to meet the requirements for availing the said model.

The India-Singapore DTAA and Offshore Licensing

The foundation of most of the Singapore licensing structures is the “India-Singapore Double Taxation Avoidance Agreement (DTAA)”. It was signed in 1994 and subsequently modified through amendments and the ‘OECD Multilateral Instrument’.

For licensing arrangements, Article 12 of the treaty assumes particular importance. Under the treaty, royalties paid from India to a Singapore resident may generally benefit from a reduced withholding tax rate of 10%, provided the Singapore recipient qualifies as the beneficial owner of the income. The importance of the treaty increased significantly after the Finance Act, 2023, which raised India’s domestic withholding tax on royalty payments made to foreign entities from 10% to 20%. If a Singapore subsidiary qualified for treaty benefits, royalties paid from India would still be taxed at the reduced treaty rate of 10%. However, if the subsidiary fails to meet treaty requirements, such as proving beneficial ownership or sufficient economic substance, the higher domestic rate of 20% applies. Basically, treaty eligibility has become a crucial factor in determining the tax efficiency and commercial viability of Singapore-based licensing structures.

However, this concept of “beneficial ownership” has become increasingly contentious. Merely receiving royalty income is insufficient and the Singapore entity must demonstrate substantive and actual control and economic entitlement to the income. Entities designed solely to access treaty benefits face a growing risk of challenge by Indian tax authorities. The treaty framework has also evolved through amendments concerning capital gains taxation. The 2016 protocol restricted the historical treaty advantages by restoring India’s right to tax gains coming from shares acquired after April 2017. These amendments primarily concerned investment structures and they hinted towards a broader policy shift towards preventing treaty abuse.

The Rise of Anti-Avoidance Rules

The most significant development affecting offshore licensing structures is the emergence of a comprehensive anti-avoidance architecture. India’s General Anti-Avoidance Rules (GAAR), operational from around 2018 to 2019, empower tax authorities to disregard any arrangements primarily designed to obtain tax benefits. Under GAAR, authorities may characterize transactions, disregard entities, or reallocate income where arrangements lack commercial substance and are done just to obtain some tax benefit.

For offshore licensing structures, this creates a significant hurdle. A Singapore subsidiary that nominally owns intellectual property but performs few meaningful functions may be viewed as an avoidance arrangement. In such circumstances, royalty deductions may be denied, and income may be attributed elsewhere within the group structure.

Apart from GAAR is the Principal Purpose Test (PPT), introduced through the OECD Multilateral Instrument and effective in the India-Singapore treaty relationship since April 2020. The PPT denies treaty benefits where obtaining such benefits was one of the principal purposes of an arrangement. Unlike GAAR, the PPT contains no monetary threshold and applies specifically at the treaty level. Consequently, a Singapore subsidiary may simultaneously face treaty benefit denial under the PPT and domestic anti-avoidance consequences under GAAR.

Recent judicial developments have reinforced this trend. In the Supreme Court’s decision involving Tiger Global, the Court emphasized that a Tax Residency Certificate alone cannot guarantee treaty benefits where commercial and economic substance itself is absent. The judgment reflects an increasingly substance-oriented approach to cross-border tax planning and signals possibility of putting offshore structures under scrutiny beyond their plain, formal legal form. The implications extend beyond investment holding structures. Although Tiger Global case dealt with capital gains taxation, its reasoning is highly relevant to intellectual property licensing. The decision suggests that future disputes involving royalty structures may similarly focus on economic reality rather than formal ownership arrangements.

OECD’s BEPS

The OECD’s BEPS initiative has reshaped international IP planning. BEPS Action 5 requires preferential intellectual property tax regimes to be linked to genuine research and development activity. As a result, tax benefits can no longer be obtained merely by locating legal ownership of IP in a low-tax jurisdiction.

Singapore’s Intellectual Property Development Incentive (IDI) reflects this principle. The incentive offers concessionary tax rates of 5% to 10% on qualifying intellectual property income. However, eligibility depends upon the extent to which the research and development activities are conducted within Singapore. So, a Singapore subsidiary with little local R&D expenditure may receive minimal benefit from the incentive because its nexus fraction will be correspondingly low. BEPS Actions 8 to 10 further highlight that mere legal ownership is not enough and returns from IP should be allocated to entities performing Development, Enhancement, Maintenance, Protection, and Exploitation functions.

India’s Emerging IP Tax Landscape

While international reforms have reduced offshore advantages, India has simultaneously enhanced the attractiveness of domestic IP ownership.

A particularly important development is Section 115BBF of the Income Tax Act, 1961 also referred to as ‘India’s patent box regime’. Introduced in 2016, the provision taxes qualifying royalty income from Indian- developed and registered patents at a concessional rate of 10%, enabling Indian companies to exploit IP globally while benefiting from a relatively low effective tax rate. In many cases, the 10% rate rivals or exceeds the tax efficiency historically associated with Singapore structures.

This development challenges the assumption that offshore ownership is inherently superior. For businesses whose intellectual property is developed primarily in India and whose royalty streams are concentrated within India, retaining ownership through an Indian holding company may produce comparable tax outcomes with substantially lower compliance costs.

Transfer Pricing as the Central Challenge

Regardless of where intellectual property is located, transfer pricing remains the critical regulatory discipline governing licensing structures. India’s transfer-pricing framework requires all related-party licensing arrangements to ensure that royalty rates must reflect the value of the underlying intellectual property and the contributions made by each entity involved. Indian tax authorities have consistently scrutinized royalty arrangements involving offshore IP holding companies.

The use of Singapore subsidiaries often attracts greater scrutiny because cross-border transactions provide opportunities for profit shifting. Authorities frequently challenge royalty rates, and argue that significant value creation occurs within India. The compliance burden is substantial. Multinational groups must maintain detailed transfer-pricing documentation.

Singapore’s New Substance Requirements

Recent Singapore reforms have further altered the offshore licensing landscape. Beginning in 2025, Singapore authorities focused on requirements for obtaining Certificates of Residence. Foreign-owned holding companies must now demonstrate meaningful local management and decision-making. Section 10L of Singapore’s Income Tax Act, effective from January 2024, taxes certain foreign-sourced disposal gains and specifically excludes intellectual property rights from certain substance-based exemptions.

Conclusion

The comparison between Indian holding companies and Singaporean subsidiaries reveals an area undergoing transformation and development. Historically, Singapore structures derived significant advantages from treaty benefits, favourable tax incentives, and flexible cross-border planning opportunities. However, due to the combined impact of GAAR, the Principal Purpose Test, BEPS reforms, and recent judicial decisions such as Tiger Global has substantially narrowed the scope for tax-driven offshore licensing arrangements.

Today, the optimal structure depends more on genuine commercial reality. Where intellectual property is developed, managed, and exploited primarily within India, the Indian holding company model provides a good alternative. But Singapore subsidiaries remain valuable where substantial international operations and Singapore-based research and development activities justify the model. Essentially, offshore licensing structures can no longer rely on formal legal ownership alone. In an era defined by ‘substance-over-form’ taxation, sustainable structuring requires alignment between legal arrangements, economic activity, and actual creation. Only structures supported by genuine commercial substance are likely to withstand the increasingly thorough scrutiny of tax authorities and courts.

Author:- Shriyansh Tiwari, in case of any queries please contact/write back to us at support@ipandlegalfilings.com or   IP & Legal Filing.

Endnotes

1. Income Tax Act, 1961 (India), ss. 9, 92–92F, 115BBF & Chapter X-A (General Anti-Avoidance Rules), as amended by the Finance Act, 2023.
2. Agreement between the Government of the Republic of India and the Government of the Republic of Singapore for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income (India–Singapore DTAA), signed 24 January 1994, as amended by subsequent Protocols and modified through the OECD Multilateral Instrument.
3. OECD, Countering Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance: Action 5 – 2015 Final Report (OECD/G20 Base Erosion and Profit Shifting Project, OECD Publishing, Paris, 2015).
4. OECD, Aligning Transfer Pricing Outcomes with Value Creation: Actions 8–10 – 2015 Final Reports (OECD/G20 Base Erosion and Profit Shifting Project, OECD Publishing, Paris, 2015).
5. Director of Income Tax (International Taxation) v. Tiger Global International II Holdings, Supreme Court of India, concerning the application of the India–Mauritius tax treaty and the significance of commercial substance and treaty entitlement in cross-border tax arrangements.
6. Singapore Income Tax Act 1947, s. 10L (introduced with effect from 1 January 2024), together with guidance issued by the Inland Revenue Authority of Singapore on tax residency, economic substance, and cross-border income taxation.