02Direct Tax

December, 2018 – Volume 104NEWSFLASH

www.nangia.com

FDI POLICY ONE-COMMERCEREVISED

IDEXNEWSFLASHDecember, 2018 – Volume 104

FDI POLICY ON E-COMMERCEREVISED

The Department of Industrial Policy & Promotion (DIPP) has announced new restrictions on FDI ine-commerce sector vide Press Note No. 2 (2018 Series) dated 26.12.2018 (effective from 01.02.2019) as ameasure to address the concerns raised by traders’ body that discount on e-commerce marketplace platformsare ‘violation of FDI norms’. Impact analysis & comparison of consolidated FDI policy 2017 old and newprovisions.

Clause Original Content Revised Provisions Changes Consequences

/Impact5.2.15.2

.4 (iv)

❖ E-commerce entity

providing a

marketplace will not

exercise ownership

over the inventory

i.e. goods purported

to be sold. Such an

ownership over the

inventory will

render the business

into inventory based

model

❖ E-commerce entity

providing a

marketplace will not

exercise ownership

over the inventory i.e.

goods purported to

be sold. Such an

ownership over the

inventory will render

the business into

inventory based

model.

❖ (New) Inventory of a

vendor will be

deemed to be

controlled by e-

commerce

marketplace entity if

more than 25% of

purchases of vendor

are from marketplace

entity or its group

companies

❖ E-commerce

entity (ECM)

cannot

exercise

control over

more than

25% of its

sales from

one vendor or

its group

companies

❖ If such entity

does so, then

inventory of

such vendor

shall be

deemed to be

controlled by

the entity and

will render

the business

into inventory

based model

which is

disallowed

❖ More clarification has

been given on

threshold which is

aimed at ending

discriminatory

practice by e-

commerce companies

and protecting the

interest of domestic

players, who have to

face tough

competition from e-

retailers

❖ However, sales

restriction will be

deterrent for small

vendors who are

entirely dependent on

sale from a specific

portals or even

deterrent to vendors

over the condition on

vendors to sell only 25

per cent of their

products through an e-

commerce platform

IDEXNEWSFLASHDecember, 2018 – Volume 104

Clause Original Content Revised Provisions Changes Consequences

/Impact5.2.15.2

.4 (v)

❖ An e-

commerce

entity will not

permit more

than 25% of

the sales value

on financial

year basis

affected

through its

marketplace

from one

vendor or their

group

companies

(Merged into

above clause)

❖ (New) An entity having

equity participation by e-

commerce marketplace

entity or its group

companies, or having

control on its inventory by

ecommerce marketplace

entity or its group

companies, will not be

permitted to sell its

product on the platform

run by such marketplace

entity

❖ If any entity is

holding equity

shares or

having control

(over

inventory) in

ECM or its

group

companies

❖ Such entity

cannot sell its

product on

platform

owned by

ECM

❖ E-commerce will have

to tweak their business

models to cope with

this change

❖ New brands entering

the country through the

e-commerce

marketplaces will now

be affected as brands

cannot sell to their

group entities

❖

5.2.15.2

.4 (ix)

❖ E-commerce

entities

providing

marketplace

will not directly

or indirectly

influence the

sale price of

goods or

services and

shall maintain

level playing

field

❖ E-commerce entities

providing marketplace will

not directly or indirectly

influence the sale price of

goods or services and shall

maintain level playing

field.

❖ (New) Services should be

provided by e-commerce

marketplace entity/ies in

which e-commerce

marketplace entity has

direct or indirect equity

participation or common

control to vendors on

platform at arm’s length

and in a fair and non-

discriminatory manner.

Such services include

logistics, warehousing,

payments, marketing etc

including cash back.

❖

❖ All the ECM or

its group

companies

having

common

control over

vendors should

provide

services

(including cash

back) on arm’s

length basis

and in fair and

non-

discriminatory

manner

❖ If any existing

ECM is

providing

provision of

services to any

vendor which

is not available

to any other

vendor shall be

deemed to be

unfair and

discriminatory

❖ This has a major

impact an e-commerce

companies as this will

help curb all mal-

practices and

predatory pricing

policy and deep

discounting of e-

commerce players

❖ Insertion of this clause

will enable a level

playing field for all

sellers, helping them

leverage the reach of

e-commerce.

❖ Providing fair and non-

discriminatory terms

will protect the

interest of MSMEs and

small vendors as online

retailers have been

offering aggressive

steep discounts to

attract customers,

which has impacted

the sales of offline

retailers

IDEXNEWSFLASHDecember, 2018 – Volume 104

Clause Original

Content

Revised Provisions Changes Consequences

/Impact5.2.15.2.4 (xi) __ ❖ (New) E-commerce

marketplace will not

mandate any seller to sell

any product exclusively on

its platform only

❖ ECM cannot

restrict the

vendor to sell

any product

through its

platform only

❖ Vendors can

sell through

one or more

ECMs

❖ This will not affect

brands much since they

are not sold directly to

any marketplace but to

different sellers

❖ However it will again

look after the interest

of MSMEs and small

vendors

5.2.15.2.4 (xii) ___ ❖ (New) E-commerce

marketplace entity will be

required to furnish a

certificate along with a

Report of statutory auditor

to RBI confirming

compliance of above

guidelines, by 30th

September every year for

the preceding financial

year.

❖ Now there is

an additional

requirement of

filing with RBI

❖ The ECMs will

have to submit

a CA certificate

along with the

financials every

year by 30th

September

❖ To keep compliance

check of the

ecommerce companies

keep an eye on

governance

ABOUT US

Nangia Advisors LLP is a premier professional services organization offering a diverse range of Taxation,

Transaction Advisory and Business Consulting services. Nangia Advisors LLP has presence currently in Noida,

Delhi, Gurgoan, Mumbai, Dehradun and Singapore.

Quality of our people is the cornerstone of our ability to serve our clients. For this reason, we invest tremendous

resources in identifying exceptional people, developing their skills, and creating an environment that fosters their

growth as leaders. From our newest staff members through senior partners, exceptional client service represents a

dedication to going above and beyond expectations in every working relationship.

We strive to develop a detailed understanding of our clients’ business and industry sector to offer insights on market

developments and assist our clients develop effective strategies and business models. We have the resources and

experience necessary to anticipate and competently serve our clients on issues pertaining to all facets of Tax and

Transaction Advisory. We take pride in our ability to provide definite advice to our clients with the shortest turnaround

time. The business and tax landscapes have changed dramatically, and the pace and complexity of change

continues to increase. We can assist you navigate this shifting landscape.

NOIDAA-109,Sector-136,

Noida (Delhi- NCR)

201304,

INDIA

OUR OFFICES

DELHIB-27, Soami Nagar,

New Delhi – 110017,

INDIA

MUMBAI11th Floor, B Wing, Peninsula

Business Park, Ganpatrao

Kadam Marg, Lower Parel,

Mumbai – 400 013. INDIA

DEHRADUNFirst Floor, “IDA”

46 E. C. Road,

Dehradun – 248001,

Uttarakhand.

INDIA

SINGAPORE24 Raffles Place,

#25-04A, Clifford

Centre,

Singapore - 048621

Copyright © 2018, Nangia Advisors LLP All rights reserved. The Information provided in this document is provided for

information purpose only, and should not be construed as legal advice on any subject matter. No recipients of content from

this document, client or otherwise, should act or refrain from acting on the basis of any content included in the document

without seeking the appropriate legal or professional advice on the particular facts and circumstances at issue. The Firm

expressly disclaims all liability in respect to actions taken or not taken based on any or all the contents of this document.

GURGOAN812-814, Tower B,

Emaar Digital Greens

Sector 61, Gurgaon,

Haryana- 122102