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PhonePe’s investors had to pay a very high price to relocate to India, chief executive Sameer Nigam said, adding the digital payments firm’s decision to shift from Singapore has cost its investors a “shocking" 8,000 crore in capital gains taxes.

“If you want to move domicile from any other market to India, it’s treated as a capital gains event...So, you have to make a fresh market valuation and have to pay tax on the delta," Nigam told PhonePe’s chief technology officer Rahul Chari in a YouTube conversation on Wednesday.

PhonePe, backed by Walmart Inc. and Tencent, also stands to lose the chance to offset $900 million of accumulated losses against future profits, as local tax authorities view the shift in domicile as a restructuring event.

Further, Nigam said employees would also begin anew with their employee stock option (Esop) vesting period as per Indian laws. “The law in India says if you migrate the Esop plan, you have to start again with a new one-year cliff," said Nigam, adding that it’s hard for startups, particularly early-stage ones, to convince employees about the additional vesting period in India.

The company shifted its domicile to India in October as it wanted to list its stock on domestic bourses and create shareholder and ecosystem value locally, Nigam said, adding that PhonePe could withstand the “shock" despite it being a maturing business only because its “investors have a multi-decade view".

Nigam also underscored that following PhonePe’s domicile shift, close to 20 unicorn startups and their investors reached out with the intent to change their domicile back to India. Nigam, however, didn’t disclose the names of the firms. PhonePe’s domicile shift was followed by the fintech unicorn raising $350 million from private equity firm General Atlantic at a valuation of $12 billion. More investors, including Tiger Global, will likely invest up to $1 billion in the round that gave it the tag of India’s most valued fintech.

The company said in October that it had plans to go public in 2023. Things, however, have changed a lot since. For instance, PhonePe separated from Flipkart in December. The latter had acquired PhonePe in 2016. Nigam explained that for the domicile shift, it had to align the board and shareholders of PhonePe as well as its largest shareholder Flipkart. He added that the separation of PhonePe from Flipkart will help unlock more value and “give the company opportunities to bring other investors more aligned to its business".

Nigam did not provide an exact timeline for the initial public offering when Chari asked about it.

“Change of domicile back to India is a rare phenomenon as companies previously went to set up in tax havens such as Singapore or Mauritius. However, with offset of multilateral instruments and replacement of double tax treaties, tax havens are becoming unattractive as operating from there will be an added cost," said Atul Puri, managing partner and cofounder, tax advisory firm SW India.

“As per the provisions of Section 79 of the Income-tax Act 1961, if there is a change in beneficial ownership of shareholding of more than 50%, vis-a-vis the end of the year in which the losses were incurred, the company will not be able to carry forward such losses and set off against profits of the future years," said Rahul Charkha, partner, Economic Laws Practice. The shift in the domicile restructured the ownership of PhonePe.

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