1 Key Tax issues in Key Tax issues in India India
Dec 25, 2015
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Key Tax issues in IndiaKey Tax issues in IndiaMaulik Doshi, SKP. May 30, 08, Vienna.Maulik Doshi, SKP. May 30, 08, Vienna.
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Agenda
Opening ThoughtsKey tax issues in India
Corporate Tax issues on deputation of expatriates to IndiaTaxability of payments by Non-Residents to Non-ResidentsTaxation of softwareOther emerging issues
Concluding remarks
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Opening Thoughts
Increasing GlobalizationSignificant increase in cross-border activities
to / from IndiaTax laws evolving
It is only recently that India is exposed to tax issues on cross border transactionsHost of judicial pronouncement with differing views
“Ground” realitiesPractical difficulties when applying the tax lawTax authorities’ approach generally biased towards Revenue
Frequent retrospective amendmentsNeed to keep this aspect in mind while planning
A tax payer is presumed guilty unless proven otherwise !
A tax payer is presumed guilty unless proven otherwise !
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Deputation – The Concept
Back-to-back payments for deputed expat’s cost borne by UK Co??
• Expat continues on UK payroll
• Salaries paid by UK Co
Deputation of Expatriate
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Deputation vis-à-vis PE
Permanent EstablishmentCreates a taxable presence in
jurisdiction (read India)Deputation of employees may result in:
Fixed Place PEAgency PEService PE
Important precedent - Morgan StanleySupervisory / Stewardship activities do not constitute PE
PE exposure could be avoided with suitable tax planningPE exposure could be avoided with suitable tax planning
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Deputation vis-à-vis FTS / Service Tax
Reimbursement of salary cost to UK Co. in respect of deputed employees – whether taxable in India?
View 1 – Taxable as FTSAs services rendered by Foreign Co. to Ind Co. through employeesAT&S India Private Limited
View 2 – Not TaxableAs salaries paid abroad on account of administrative convenience and therefore, mere reimbursementsHCL Infosystems Ltd
Similar issues under Service Tax
Contractual arrangement assumes significance!
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Deputation – other aspects
Withholding tax issuesExpenses disallowed in case taxes not withheld
FBT Exposure In respect of employee “based in India”
Implications for deputed employees – treaty benefits
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Payments by one NR to another NR outside India
Whether payments made by NR to NR outside India taxable in India?
Yes, if the source if income is in India / income arises in India
Indian domestic law provides for taxability in India in such situationsEven certain treaties provide for it
Examples - Royalties / FTS paid by NR to NR outside India but in connection with license / services utilized in India
Obligation on the payer to withhold taxes while making payment and to comply with Indian regulations
Non deduction of TDS would lead to tax disallowance under the Indian lawsLaw amended to hold “buyer” / “payer” responsible for taxes not paid by seller / recipient of income
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Vodafone controversy
Capital gains earned on transfer of shares of Indian company taxable in India
Even group re-organization covered
Whether capital gains on sale of shares of off-shore holding company taxable in India?
Till now not taxable in India Infact many MNCs have been interposing holding company to make investments in India to save on capital gains tax
However tax authorities are taxing the same Since the underlying asset / shares are in IndiaVodafone’s acquisition of Hutch Essar – currently litigated 400 M&A / PE deals being scrutinized by Indian tax authoritiesEven FIIs being asked to pay taxes on PN dealings outside India
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Software categories
Canned or Shrink Wrapped SoftwarePrewritten software requiring no modification for customer use
Custom Made SoftwareDeveloped for specific customer needs.
Software embedded with the hardwareSoftware supply along with related services like customization, installation etc.Limited duration rights for use of software license
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Taxation of software
Payment for purchase of shrink wrap software is purchase of goods and not royalty
Sonata Software Ltd Transfer of right to use software put in media amounts to sale of goods
Tata consultancy servicesRight to use copyright vs right to use copyrighted product
Payment only covering the former without transfer of any of the latter rights does not come within the definition of royalty
Samsung Electronics Co. Ltd. Lucent Technologies Hindustan Ltd. Motorola Inc., Ericsson Radio Systems A.B., Nokia Networks OY.
Turnkey contract for software supply as well as installationService PE issue even for the supply portion
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Taxation of software
Majority of the OECD countries does not treat payments for import of shrink wrapped software as royalty.Indian High Powered Committee report differs from OECD TAG Report in many aspectsIndian judicial pronouncements not consistent with each other
Many cases where software supply is not treated as RoyaltyLower level tax authorities inclined to take a stand that software supply is Royalty
Desirable for the government to come out with suitable guidelines
Certainty for the taxpayers and tax administration
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Other Emerging Issues
Attribution of profits to PESET Satellite vs Morgan Stanley
Taxation of Liaison Offices of foreign companies
Transfer Pricing issuesTaxation of FIIs – whether capital gains or business income?
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Key Transfer Pricing issues
Payment of royalties and management feesto meet the economic benefit test
Mark-up required for Captive ITES / BPO companies in IndiaUse of Secret ComparablesMarket Penetration strategy and business considerations ignored for distribution entitiesAdjustments for distributors promoting brand of foreign parentNot accepting foreign company as tested partyAdjustments of imputed interest costs for excess credit period granted
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Concluding Remarks
Changing legislationRetrospective amendmentsTreaties re-negotiated to plug loopholes
Revenue officers on the learning curve New income tax code to be in place soonCFC and thin cap regulations on the cards!Front-end planning essential (advance rulings)International precedents increasingly being usedLitigation can be complex, costly & time consuming – evaluate costs, risks & benefits
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SKP’s Tax & Transfer Pricing Services
International TaxEntry Strategy for Inbound investmentsStructuring Outbound investmentsExpatriate taxationInternational Contract structuring in relation to EPC ContractsExchange control assurance and advisoryTransaction support services
Withholding tax advice and certification on overseas payments Industry specific certifications such as tax relief and port clearance certificates for the shipping industry
Transfer Pricing Designing Global TP policy
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Some of our work…
Advising one of Israel’s largest shipping company in relation top non-taxability of various ancillary charges in India and thereby saving substantial taxes in IndiaAdvising an Indian listed company on optimal holding company jurisdiction for it to make investments / acquisitions in 23 target countriesAdvising an Indian listed company into diversified business on the optimal holding company jurisdiction with respect to their acquisition in GreeceAdvising a large US private equity firm on consolidating the existing 8 investment structures with regard to US and Indian IT investments into a single holding companyAdvised a UK pharmaceutical company regarding tax minimization in UK and other jurisdictions on international royalty income from 5 countries
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Some of our work…
Advising an UK Company in structuring their private equity swap in IndiaAdvising leading software company having operations in US, UK and other European countries in relation to designing their employees’ foreign travel policy from commercial, Indian & overseas tax, immigration, regulatory and legal perspectiveAssisting Indian software companies in procuring special dispensation for their employees from tax authorities in overseas jurisdictionsInternational tax planning / structuring issues related to the establishment of a Greenfield packaging plant in India for a Canadian investorAdvising and obtaining tax refunds for a leading Austrian engineering company undertaking a turnkey contract for technical assistance and supervision in IndiaProviding an optimal & tax efficient structure to overseas funds investing into Real Estate Sector in India
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Some of our work…
Providing an international structure for establishing operations in over 35 countries including China, Belgium, US, UK, etc for a leading healthcare companyMinimization of Indian withholding tax relating to fees being paid by a leading Indian investment bank to a large international consulting company which had offices in 5 cities abroad Tax planning and obtaining withholding tax certificate for an Israel based NASDAQ listed telecom software company Assisting Indian software companies executing projects abroad, in their international tax structuring and avoiding PE exposure abroadAdvised an overseas dredging company on their dredging contract in India with a view to reduce overall Indian tax considering Indian and international tax structuring via an intermediate sub-contracting entity
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Some of our work…
Advising one of the largest shipping company in changing the transfer pricing policy to remunerate its agent (subsidiary in India) from % commission to cost plus thereby achieving substantial tax savingsAdvising a listed Indian company and largest paint manufacturer in India with 23 subsidiaries overseas in formulating an intra-group management fee policy from transfer pricing perspectiveAssisting an US listed publishing company in formulating a global transfer pricing policy with respect to intra-group transactions with its Indian subsidiary and maintenance of documentation under US & Indian regulationsAdvising an India Software company having marketing offices in US & UK in formulating transfer pricing policy with benchmarking search on overseas databasesRepresenting a leading global cosmetic company in defending their transfer pricing policies before the Indian transfer pricing authorities
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Our Service Edge
Experience Over 40 years of tax advisory experience
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Holistic approachIntegrating commercial, international tax and transfer pricing, exchange control, withholding tax, service tax, legal considerations
Track RecordClients from 25 countries across several industries
Global accessEstablished network of worldwide tax consultants
Global approachIntegrating Indian and foreign tax needsTransfer Pricing policy approved by Indian and UK authorities
Customised ServicesAligning services to meet client needs
Personal touchPartner – led services
Our associations with trade Knowledge partner of NASSCOMTP Representation for Gem and Jewellery industry
At SKP, we take full ownership and responsibility for the job!!!
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Our Service Edge
Technical Competence Practice heads trained overseasExtensive international tax libraryAccess to Indian and foreign databasesDedicated research team that ensures timely and high quality advice
Good rapport and established credibility with Tax AuthoritiesSKP’s TP Documenation Report sent to CBDT as a model reportAppointed by CBDT to study and comment on Indian TP Regulations and recommend way forwardSeminars / training to TP OfficersSpecial TP audit for the CBDTStrong representation skills
At SKP, we take full ownership and responsibility for the job!!!
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Indian regulatory framework - EU invitation to seminars in 10 cities in EuropeJoint ventures - European Research Agency, BrusselsIndian international tax issues and advance rulings - European American Tax Institute, London
Doing Business in India Singapore Confederation of Industries, Singapore
Doing business in India and regulatory framework Leeds University Business School
Outsourcing Services Overseas Norton Rose, London
Setting up in India Scottish Chambers & High Commission of India, Edinburgh
Setting-up software facilities NORAD, Oslo
More than 50 worldwide such as…….
Seminars
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Practical issues in Transfer Pricing assessment – Institute of Chartered Accountants of India (ICAI) – WIRC, PuneDocumentation under Indian Transfer Pricing Regulations - (ICAI) – WIRC, Mumbai & PuneIndian Transfer Pricing Regulations – ICAI (WIRC) & BCAS
Transfer Pricing - Gem & Jewellery Council
Transfer Pricing & Outbound Investments to UK – Invest UK British Trade Office
Transfer Pricing – Direct Tax Regional Institute, CBDT
Attribution of Profits to a Permanent Establishment - (ICAI) – WIRC, Mumbai
Introduction to International Tax – Direct Tax Regional Institute, CBDT
and in India too …….Seminars
Deputation of Employees and Expatriate Tax Issues – Quest India, Mumbai
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Written Word…
BooksDoing business in India and UKAmalgamation of CompaniesJoint Ventures & Foreign CollaborationsPractical guide for foreign companiesGuide to income-tax in IndiaWritten an article for Institute of Chartered Accountants of England on “Offshoring Finance and Accounting processes to India” “Inward and Outward Investment: India and the UK” published by Tottel Publications Written an article for the UK trade and Investments publication “Infinite Possibilities – a guide to establishing a presence In the UK”
Articles in Economic Times, International Tax Review, Tax
Notes International, UK Trade and Investment, etc.
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Contact
Maulik Doshi2nd Floor, Ballard House, Adi Marzban Marg, Ballard Estate, Mumbai 400 001. IndiaPhone # +91 22 6617 8000Cell # +91 98205 40027Fax # +91 22 6617 8002Email: [email protected]
Visit us at www.skpgroup.com
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