November 10 2014
Secondment/ Deputation of employees within group has been a very common feature in almost all major business houses in India. Further, the globalization of Indian economy has resulted in substantially increased presence of Multi-National Companies (MNC) in India. This gives rise to cross-border secondment/ deputation of employees within a group. The tax (income tax) controversy surrounded to such secondment/deputation is a known phenomenon amongst the industry and professionals. Recently, the service tax department in several such secondment cases raised their hands and claimed that such secondment/deputation is chargeable to service tax (under the category "supply of manpower") as well.The Allahabad High Court (HC) in the case of Commissioner of Central Excise v. M/s Computer Sciences Corporation India Pvt Ltd (2014-TIOL-1896-HC-ALL-ST) held that in order for the transaction to be a taxable service within the meaning of (erstwhile) Section 65(105 )( k) of the Finance Act, the services must meet the following requirements:Read More
August 21 2014
As part of the group restructuring policies & commercial deliberations, share transfers do take place between holding entities of foreign companies. As a result of which, the share holding of the Indian subsidiary of the foreign holding company is also indirectly transferred to a new foreign entity. In effect the transactions results into share transfer between two non-resident entities whereby simultaneously shareholding in the Indian entity also gets transferred. This reminds of one of the most discussed & debated deal between Hutch & Vodafone, where the Supreme Court of India held that the Indirect transfer of shares in Indian entity is not taxable in India. Pursuant to which, the Indian Income Tax Act was amended so as to levy income tax on capital gains as a result of transfer of a capital asset being any share or interest in a company outside India, if the share or interest derives, directly or indirectly, its value substantially from the assets located in India.[insertion of explanation 5 to section 9(1)(i)]
It is in this background there was no clarity on the interpretation of the word substantially as it can be a subjective term and there is no concrete number to decide the substantiation of the transaction.Read More
Indian Budget’s amendments to Transfer Pricing provisions – a further step towards a predictable tax environment
August 6 2014
India's Transfer Pricing Regime has been the subject of significant criticism. Whether the July's Union Budget proposals to amend the current transfer pricing regime, would simplify the tax regime and restore confidence among the tax payers especially foreign investors?
Article: "Indian Budget's amendments to Transfer Pricing provisions - A further step towards a predictable tax environment" published by Bloomberg BNA in their Transfer Pricing International Journal for the month of July.
Can Supervisory Activities/work constitute a Permanent Establishment (PE) of the Multinational Enterprise ??
July 2 2014
n a large construction/assembly project awarded to an Indian arm of foreign parent, it is common practice that the technicians of the foreign parent visit the host country on a frequent basis to supervise the overall work and provide the necessary technical guidance to the management/employees of the Indian arm.
Another set of transaction could be that a large construction/ assembly project is awarded to an Indian entity, however for better technical qualities, foreign companies expert in this filed, send their technicians to supervise the overall project work.
Whether such Supervisory Services by foreign companies to Indian entities could result in a Supervisory PE of the foreign company and liable to higher rate of taxation in India ???Read More
Article – (FDI) in LLP in India – Cross Border Tax Issues- Published by International Tax Review – A Globally published Journal
June 4 2014
Limited Liability Partnership (LLP) is a widely practiced form of doing business globally. And, once Foreign Direct Investment (FDI) in LLP was allowed by Government of India many MNCs have started setting up LLP in India. This surge by MNCs can well be on the fact that at present there is no repatriation tax [in case of Companies Dividend Distribution Tax is levied @ 17% (as per the Extant IT Act) on the repatriable profit- off course there are means by which double taxation is avoidable in foreign country on such repatriated profits] on profits repatriated by an LLP in India.
However, there can be number of cross border taxation issues, particularly under Double Taxation Avoidance Agreements (DTAA)/ Tax Treaties, which requires utmost attention with respect to the taxability of such LLPs & their foreign partners.Read More
External Commercial Borrowings (ECB) from Foreign Equity Holder (FEH) & Outbound Investment by a Limited Liability Partnership (LLP)
May 20 2014
As per the extant ECB policy, ECBs from direct foreign equity holders (FEHs) are considered both under the automatic and the approval routes. ECBs from indirect equity holders and group companies and ECBs from direct FEH for general corporate purpose are, however, considered under the approval route. Further, any request for change of the ECB lender in case of FEH requires RBI’s approval.
Reserve Bank of India has come out with a circular delegating powers to AD Banks to approve raising of ECBs for the following cases under the automatic route:
- By companies belonging to manufacturing, infrastructure, hotels, hospitals and software sectors from indirect equity holders and group companies.
- Companies in miscellaneous services from direct / indirect equity holders and group companies. Miscellaneous services mean companies engaged in training activities (but not educational institutes), research and development activities and companies supporting infrastructure sector. Companies doing trading business, companies providing logistics services, financial services and consultancy services are, however, not covered under the facility.
- By companies belonging to manufacturing, infrastructure, hotels, hospitals and software sectors for general corporate purpose.ECB for general corporate purpose (which includes working capital financing) is, however, permitted only from direct equity holder.
- Change of lender when the ECB is from FEH – direct / indirect equity holders and group company.
Overseas Direct Investment (ODI) /Outbound Investment by a LLP permitted
Limited Liability Partnership (LLP), registered under the Limited Liability Partnership Act, 2008 is notified as an "Indian Party" for regulations w.r.t Overseas Investment and accordingly an LLP can undertake financial commitment on behalf of a JV/WOS abroad.Read More