Case Study: How Hind Tax Advisors Helped a Pune-Based Tech Startup Cut US Tax Burden by 15%

The Challenge: A High-Growth Startup’s US Expansion Headache

A rapidly expanding technology startup located in Pune was poised to achieve a significant breakthrough. Their premier Software as a Service (SaaS) product was experiencing increasing popularity within the United States market, prompting the decision to establish a subsidiary in the US to directly serve their American clientele and to attract international investment.

Though their product development was impeccable, they lacked familiarity with US tax law. They initially organized their US company as a straightforward C Corporation, thinking this was the sole choice. They did not know about the convoluted system of US federal and state taxation, the rules of transfer pricing between the Indian parent and the US subsidiary, and the sheer necessity of compliance with certain IRS forms such as Form 5472.

The US-based Certified Public Accountant (CPA) was making the straightforward filings; yet, the advice given was reactive, not strategic. The firm was going to incur a substantial tax liability in the United States, without a clear-cut profit repatriation strategy and without an organized framework to make use of the Double Taxation Avoidance Agreement (DTAA) between India and the United States. Because of this, they were paying much more than required on their tax liability, and the lack of a proactive approach was a primary concern for their investors.

The Solution: Being Proactive and Strategically Partnering with Hind Tax Advisors

Our client requested the services of Hind Tax Advisors (HTA) to obtain a second opinion. Our staff, with vast experience in Indian and United States tax laws, identified the following some key issues and areas of improvement immediately.

We began with a thorough review of their current and future operations. Our review went beyond their current filings; we reviewed their long-term growth plan, financial projections, and the character of their transactions with the Indian parent entity.

This is how we assisted them turn the tide:

1. Optimal Entity Organizational Structure: We recommended that they restructure their corporate organization. Instead of going down the conventional C Corporation path, we proposed an alternative tax-saving structure that would minimize their overall tax liability by utilizing the India-US Double Taxation Avoidance Agreement (DTAA) strategically.
2. Strategic Transfer Pricing: We thoroughly analyzed their intra-company transactions such as fee for services for their engineers in Pune and software license agreements between the entities. We formulated a detailed transfer pricing policy and supporting documents that conformed to IRS standards and also complied with the “arm’s length” test, hence limiting the risk of future tax audit and penalty.
3. Proactive Reporting and Compliance: All US-specific filings, including the significant Form 5472 reporting foreign related party transactions, fell under our firm’s responsibility. This proactive action ensured accurate and timely filing, thus minimizing the risk of incurring significant penalties.
4. Identification of Tax Credit and Deduction: We recognized a number of tax credits and deductions previously overlooked which were available to technology firms, including R&D tax credits and state incentives which their former CPA did not identify.

The Outcome: 15% Tax Savings & Peace of Mind

In the first year we were involved, the technology firm actually lowered its overall U.S. tax bill by more than 15% below its initial projections. Strategic reorganization and aggressive tax planning generated actual, real savings that could be flowed back into additional product development and market expansion.

More importantly, the founders and investors felt relieved. They now possess a well-documented, compliant, and concise tax strategy that matches their world expansion vision.

This case study is proof that for Indian businesses looking to make inroads into the United States, a domestic and strategic tax ally with cross-border experience is not a luxury, but a necessity. Hind Tax Advisors’ role is more than simply filling out forms; we create a detailed financial plan with the goal of making your success a reality.

Are you ready to create a smart, compliant and tax-efficient global presence? Call us now to arrange an appointment.