The bluebird will finally be set free. That is what many believe as Twitter accepts Elon Musk’s offer of buying the company and taking it private. After weeks of intense drama and power struggle, the social media giant is being sold for a whopping $44 billion. We tried counting the zeroes, but honestly, it went on for a while.
So, how about we analyze the deal, its nuances, and the future of Twitter in a little bit more detail. Let’s begin, shall we?
Timeline of Musk acquiring Twitter
Many are saying that Musk hinted at his plan of acquiring twitter way back in 2017
On a serious note, people started taking note of Musk’s interest in Twitter from the beginning of April when he bought 9.2% shares of Twitter.
However, the truth is Musk had quietly started buying Twitter shares in January itself, and by the 14th of March, Musk had actually acquired 5% of Twitter.
After a couple of weeks, Musk started questioning Twitter, on Twitter… for not adhering to the principles of free speech. These tweets definitely hinted at Musk’s master plan but most of us still didn’t see it coming.
Free speech is essential to a functioning democracy.
— Elon Musk (@elonmusk) March 25, 2022
Do you believe Twitter rigorously adheres to this principle?
Given that Twitter serves as the de facto public town square, failing to adhere to free speech principles fundamentally undermines democracy.
— Elon Musk (@elonmusk) March 26, 2022
What should be done? https://t.co/aPS9ycji37
Fast forward to a few days later, Musk acquires 9.2 % shares of Twitter on 9th April. Twitter then invites Musk to join Twitter’s Board. Musk accepts this offer, only to reject it soon after. Classic Elon!
Elon has decided not to join our board. I sent a brief note to the company, sharing with you all here. pic.twitter.com/lfrXACavvk
— Parag Agrawal (@paraga) April 11, 2022
The best was yet to come. On the 14th of April, Musk offers to buy the whole company for $43 billion. The board, however, was not impressed. They decided to stop Elon with the Poison Pill technique should he try to acquire more than 15% of the company.
What is the Poison Pill technique?
Well, it is a strategy through which existing shareholders can buy additional stocks at a much lower rate so that the holding of the new investor gets diluted.
Now, coming back to the main story. Musk is not the one to give up. The Twitter Board had a meeting with Musk where he detailed the elements of his financing plan. This seemed to have caused a change of heart among the ones on the board and they accepted Musk’s offer of taking over the company.
What is Musk’s vision for Twitter?
Musk is one of Twitter’s most influential users and also one of its harshest critics. He wants to bring about some significant changes in the Social Media Platform which include:
Free Speech
Musk has been lobbying for free speech on the platform for the longest time. He wants to make Twitter a platform that encourages wide-ranging discourse and disagreement. To that end, he wants even his worst critic to remain on Twitter.
I hope that even my worst critics remain on Twitter, because that is what free speech means
— Elon Musk (@elonmusk) April 25, 2022
How would he do that? Well, from the looks of it, softening Twitter’s stance on content moderation, making Twitter’s algorithm open-source, fighting spambots, and knowing Mr. Musk, a lot more. He also mentioned that he would strive to improve the user experience on Twitter by introducing a bunch of new features.
Moving to a subscription-based model
Advertising continues to be the major source for Twitter and Musk wants to move away from that. He feels that Twitter is favoring the content that benefits the advertisers and in the process deprioritizing…you guessed it…free speech. So that is why he wants to move away from advertising to a subscription-based model.
What will happen to my Twitter Stocks once it goes private?
Aaahh! It is time to address the elephant in the room. What will happen to the shares of the shareholders once Twitter goes private.
This is a question that many of us might be having given how easy has it become to invest in US stocks. You might be sitting here in your hometown in India and owning a bit of Apple and Google. Pretty cool if we may say so.
Once, Elon Musk acquires Twitter it will cease being a publicly listed company and become a private. So how does that work? We all have heard of private companies going public, but how does the reverse happen?
When a Public company wants to go private, the company/board or the external party offers to buy the publicly listed shares of the company at a premium. Why? Well, if you bought an apple for INR 5, and someone offers to buy it for INR 10, would you not want to sell it?
It’s the same logic here, the company/board or the external party offers to buy the shares at a higher price so that retail investors would be willing to sell them.
Truth be told, Twitter shares have not performed that great over the years especially when you compare them against other tech companies.
But once Mr. Musk cast his magic spell, things changed. The price of Twitter shares increased significantly both when he acquired 9.2% of the company earlier this month, and this week after the board accepted his offer. Currently, Twitter shares are trading at the price of $51.70 and Musk has offered to buy the social media giant at $54.20/ share.
So, long story short if you hold Twitter shares, you will be getting $54.20 for each share…irrespective of whether you want to sell them.
Now, let’s talk about taxes on those foreign shares
An investor gets generally two types of income from foreign stocks
- Dividend: When a resident individual receives dividend from a US stock, it will be taxed at a 25% rate and that income will also be taxed In India. However, owing to the DTAA signed between India and the US, the tax that has been deducted in the US can be claimed as foreign tax credits against the tax liability in India.
- Capital Gains: When it comes to capital gain from US shares, the gains/profits earned are exempted from US tax laws. However, the same income will be taxable in India under the head “Capital Gains”.
If you make Long Term Capital Gain i.e your holding period is more than 24 months, you will be taxed at 20% rate.
In the case of Short Term Capital Gains, i.e if your holding period is less than 24 months, you will be taxed at slab rate.
This, however, only applies to ordinary residents of India. NRIs and Not Ordinary Residents will not be taxed in India in this case, since this income was not earned in India.
Doubts That Remain
While some are celebrating this deal some are not so enthusiastic. Skeptics say that the “free speech” that Musk apparently wants to protect on Twitter will actually come under more threat since Musk will almost become the sole decision-maker and that doesn’t seem very “democracy-friendly”.
On top of that Musk has already floated the idea of cutting down staff and that is not sitting well with the employees of Twitter.
Amidst all this hullabaloo, we just have one question for Mr. Musk. When are we getting the “edit tweet” button?
Hey @Nihal ,
Since you hold the status of a resident, your global income is taxable. Thus, you must report the income on sale of foreign shares and pay tax on it at applicable rates. Check out our Learn Center resource for more information about NRO and NRE Accounts- Guide: Income Tax for NRO and NRE Accounts
Hey @Nireka
Indian investors can invest in US stocks from India subject to RBI’s LRS guidelines. There may some RBI restrictions to hedge the foreign stock positions. For tax implications, any dividends income from foreign stock will be taxed in India subject to India- USA DTAA, as dividend is taxed @25% in USA.
Any capital gain from sale of foreign stocks are also taxed in India. When foreign stocks are sold within 24 months then it will be treated as short term, other wise long term. In case of short term gain, slab rates will apply and in case of long term gain, 20% rate with indexation or 10% without indexation will apply. Moreover, investors can claim foreign tax credits to avoid double taxation.
Can I claim credit of the tax deducted in the USA on income from the sale of shares of my company (ESOP)?
Hi @Dixita
If you are a resident in the financial year, you must report such foreign income in the ITR in India. As per the DTAA agreement between India and the USA, the same income is not taxable in both countries. Thus, if you have paid tax on such income in USA, you can claim the credit of such tax paid by filing Form 67. Tax relief shall be lower of tax paid in USA or tax payable in India and can be reduced from total tax liability in India.
You can refer to the below article for detailed provision of DTAA between India and the USA: DTAA between India and USA - Learn by Quicko
https://learn.quicko.com/form-67-claiming-foreign-tax-credit
Hope this helps
