Contribution/Donation/Corporate Social Responsibility (CSR) Contribution by Subsidiary of Foreign Company is treated as Foreign Contribution:

Section 135 of Companies Act 2013 and rules made thereunder requires every Indian Company and Foreign Company incorporated under Companies Act 1956 or Companies Act, 2013 to contribute towards CSR if crosses threshold limit as specified under Section 135 (1) of Companies Act, 2013 viz:

Every company having:

-          net worth of rupees five hundred crore or more,

-          or turnover of rupees one thousand crore or more or

-          a net profit of rupees five crore or more

during any financial year shall constitute a CSR Committee of the Board.

Now the question is whether the contribution/ donation/ CSR contribution made by Indian subsidiary of foreign company is treated as foreign contribution and the entity accepting same needs to have The Foreign Contribution (Regulation) Act, 2010 (FCRA) registration?

Any Contribution/Donation/Corporate Social Responsibility (CSR) Contribution received in the form of an article or currency or security by any person requires compliances of FCRA if it’s from foreign source and foreign company. Let’s review the definitions of terms.

Foreign Source is defined u/s 2 (j) of FCRA as

 “foreign source” includes, —

(i) the Government of any foreign country or territory and any agency of such Government;

(ii) any international agency, not being the United Nations or any of its specialised agencies, the World Bank, International Monetary Fund or such other agency as the Central Government may, by notification, specify in this behalf;

(iii) a foreign company;

(iv) a corporation, not being a foreign company, incorporated in a foreign country or territory;

(v) a multi-national corporation referred to in sub-clause (iv) of clause (g);

(vi) a company within the meaning of the Companies Act, 1956, and more than one-half of the nominal value of its share capital is held, either singly or in the aggregate, by one or more of the following, namely:—

(A) the Government of a foreign country or territory;

(B) the citizens of a foreign country or territory;

(C) corporations incorporated in a foreign country or territory;

(D) trusts, societies or other associations of individuals (whether incorporated or not), formed or registered in a foreign country or territory;

(E) foreign company;

(vii) a trade union in any foreign country or territory, whether or not registered in such foreign country or territory;

(viii) a foreign trust or a foreign foundation, by whatever name called, or such trust or foundation mainly financed by a foreign country or territory;

(ix) a society, club or other association of individuals formed or registered outside India;

(x) a citizen of a foreign country;

Foreign Company is defined u/s 2(g) of FCRA as:

(g) “foreign company” means any company or association or body of individuals incorporated outside India and includes—

(i) a foreign company within the meaning of section 591 of the Companies Act, 1956;

(ii) a company which is a subsidiary of a foreign company;

(iii) the registered office or principal place of business of a foreign company referred to in sub-clause (i) or company referred to in sub-clause (ii);

(iv) a multi-national corporation.

If both the definitions are read together, it is conferred that subsidiary of foreign company is treated as foreign company under FCRA and the amount received from the subsidiary company is treated as foreign contribution.

Conclusion:

We can derive from above that any contribution made by foreign company or subsidiary of foreign company will be treated as foreign contribution.

Thus, in case if subsidiary of foreign company wants to make foreign contribution then it has to ensure that entity accepting the said contribution is registered under FCRA.

At the same time entity accepting foreign contribution has to ensure that it has registration under FCRA for accepting it not only from foreign company but also subsidiary of foreign company even though said Company is registered under Companies Act 1956/Companies Act 2013.