By: ENS Economic Bureau | New Delhi |
January 17, 2022 1:33:54 am
Over the past few years, royalty payments of MNCs have moderated and are now more aligned to revenues and profits. (Representational Image)
Royalty payments by multinational corporations (MNCs) contracted by about 10 per cent in FY21 compared to a contraction in the pre-tax, pre-royalty profits of 5 per cent, a study by proxy advisory firm IiAS, of 30 firms, reveals.
In the previous year, royalty payments had contracted 9.5 per cent while the profits — pre-tax, pre-royalty — had fallen 9 per cent.
Over the past few years, royalty payments of MNCs have moderated and are now more aligned to revenues and profits. The top five MNCs account for nearly 80 per cent of the aggregate royalty paid. Pay-outs to the parent company as technical and knowhow fees, operations support and cost of expatriates are additional forms of charges levied on the Indian arm of global companies.
While these do not fall under the ambit of royalty from a regulatory perspective, IiAS typically factors this into its assessment.
Identifying the level of royalty payments as a concern and based on the Kotak Committee’s recommendations, in 2019, Sebi brought in the requirement of a shareholder approval by majority of minority vote for royalty payments in excess of 5 per cent of revenues. This possibly explains the moderation in royalty payments with companies not willing to risk more regulation, IiAS analysts observe.
While many companies decided to conserve cash during the pandemic and not make big dividend payments, several MNCs paid out extraordinarily high dividends. Covid was the ‘rainy day’, but MNCs put the needs of their parent companies ahead of their domestic business, IiAS notes. MNCs argue that these high dividends help non-controlling shareholders as well in the times of the crisis. While this is a legitimate argument, the global parents tend to be the biggest beneficiaries of such (timely) largesse, given their high shareholding in the Indian arm.
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