What is Reverse Flipping?

About Reverse Flipping:

• It is a term used to describe the trend of overseas start-ups shifting their domicile to India and listing on Indian stock exchanges. 
• The general motivation for a reverse flip is the increased certainty of an exit at a higher valuation in India. This trend has been gaining traction in recent years, as start-ups look to capitalise on India’s large and growing economy, access to deeper pools of venture capital, favourable tax regimes, better intellectual property protection, a young and educated population, and favourable government policies. 
• The Economic Survey 2022-23 recognised the concept of reverse flipping and proposed ways to accelerate the process, such as simplifying the processes for tax vacations, taxation of ESOPs, capital movements, decreasing tax layers, and the like.

What is flipping: 

• Flipping is when an Indian company transforms into a 100% subsidiary of a foreign entity after it has moved its headquarters overseas, including a transfer of its intellectual property (IP) and others.
• It effectively transforms an Indian startup (company) into a 100% subsidiary of a foreign entity, with the founders and investors retaining the same ownership via the foreign entity, having swapped all shares.
• What’s the harm to India from flipping?
  • Brain drain of entrepreneurial talent from India.
  • It results in value creation in foreign jurisdictions rather than in India.
  • It also results in the loss of Intellectual Property and Tax Revenue for the country.