L8 P2 Vodafone Nokia

8/12/2019 L8 P2 Vodafone Nokia

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1. Capital Gains Tax

2. Transfer Pricing Issue3. GAAR

4. DTC Reforms


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Direct tax

On the profit from sale of capital asse

Shares, Bonds, Gold, Real estate

Rate depends on time frame

Capital Gains Tax


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Shares, Bonds and MF

1 yearShort term15%

Long term20%

Gold, Real estate = 3 years


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Kishor Biy

Future Gro

Pantaloon

Kumar Manalgam

Birla

1000 Crore

Pantaloon


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Kishor Biy

Future Gro

Pantaloon

Birla

1000 Crore

Pantaloon


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Kishor Biy

Future Gro

Pantaloon

Birla

900 Crore

Pantaloon

CGT

100

Crore


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Kishor Biy

Future Gro

Pantaloon

Birla

900 Crore

CGT

100

Crore TDSWithholding TAX


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CGP investme

Holding, Caym

Hutchins

HongKo

Hutch Essar, In

Vodafone PLC,

London

Vodafone,

Netherland

Vodafone Indi

Feb. 20


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CGP investme

Holding, Caym

(67%)

Hutchins

HongKo

Hutch Essar, In

Vodafone PLC,

London

Vodafone,

Netherland

12k Crore

Vodafone Essar I

Mar. 2


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CGP investme

Holding, Caym

Hutchins

HongKo

Hutch Essar, In

Vodafone PLC,

London

Vodafone,

Netherland

Vodafone Indi

Entire Deal outside

No sale/purchase of company / its sha

CGP not in any other business

Entire Deal to acquire Hutch-Es


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2012: Supreme Court

Rs.1200

CGT


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SCIT Dept. no power / jurisdiction (exis

Govt. issues Clarification in IT act

Capital gains on companies outside India

when value derived from Indian Asset

Such companies will be considered locate

within India.Will apply to all deals from 1962 onwards

IT Act Clarification (2012)


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Evasion

Income / transactionhidden

Black money

Reported, everyon file

Black money

Avoidance

Evasion OR Avoidance?

B d 2012 GAAR


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GeneralAnti Avoidance Rules

WEF 1/4/2014

IT commissioner take action against tavoidance

Indian Citizen, NRI, Foreigner

Even outside IndiaEven retrospective

Even if protected under any DTAA

Budget 2012: GAAR

B d t 2012 GAAR


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Shome Panel

Only in rare cases

>3 Cr. + tax benefit

Not to fill Revenue shortfalls

Defer till 2016

(2013) Chidambaram=> 1/4/2016

Budget 2012: GAAR


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Arguments:

Pro-GovernmentPro IT-dept

CGT i lik V d f


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Giant Bought from Indian

Sanofi Aventis French Shantha

General Electric Luxemburg GenPact

Aditya Birla,

TataAT&T Idea (1

Vedanta Cyprus Sesa

CGT issues like Vodafone

35,000-40,000 crore tax evasio


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Profit, Interest, Dividend


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Pro-Corporate Argumen


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SHARE-HOLDERS

Board of Directors

Chairman/MD

CEO

Executi

Staff

IPO

CEO

I T (10|20


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SHARE-HOLDERS

Board of Directors

Managing Director

CEO

Executives

Staff

Income Tax (10|20

IT

PROFIT

DIVIDEND

VA

Excise Duty

Corporate Tax

CEO

I T (10|20


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SHARE-HOLDERS

Board of Directors

Managing Director

CEO

Executives

Staff

Income Tax (10|20

IT

PROFIT

DIVIDEND

VA

Excise Duty

Corporate Tax

Vodafone:


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Crore Rupees 2013

Revenue 35000 16% 56

Profit 1850 33% 61

total +621

Vodafone:

CGT LOST 12,000 Cr.

2013: fiscal consolidation


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140 CSS => 66

Austerity measures

Disinvestment

5% => 4.6% (fiscal deficit)

2013: fiscal consolidation


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Piramal and Ruia?


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CGP investme

Holding, Caym

(67%)

Hutchins

HongKo

Hutch Essar, In

Vodafone PLC,

London

Vodafone,

Netherland

Vodafone Essar I

201

Piramal

5%

Essar Ruia

22%

FDI in Telecom: 74%

Piramal 5%


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Vodafone PLC,

London

Vodafone,

Netherland (85%)

Vodafone Essar I

2013

Piramal 5%

Essar 11%

FDI in Telecom100%

Vodafone Ind

Essar 11%


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Vodafone PLC,

London

Vodafone,

Netherland (96%)

Vodafone Essar I

2014, A

Essar 11%

FDI in Telecom100%

Vodafone Ind


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TRANSFER PRICING(2013-14)


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Kishor Biy

Future Gro

Pantaloon

Birla

1000 Crore

Pantaloon


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Kishor BiyaniFuture Group

Big Bazaar Pantalo

1000 Crore


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Big Bazaar Pantalo

900 Crore

Decides the transfer

price of shares

CGT

100Crore


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Big Bazaar Pantalo

90 Crore

Decides transfer price of

1000 cr. 100 Cr.

CGT

10 Crore

UNDER-VALUATION

Why Transfer?: MNC


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Reduce Tax liability (Netherland =>Mauritius)

Replace the Chain of command

Why Transfer?: MNC

Vodafone PLC

20


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Vodafone PLC,

London

Vodafone,

Netherland

Vodafone call center

20

Vodafone PLC

2007


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Vodafone PLC,

London

Vodafone,

Netherland

Vodafone India

Services (VISPL)

Vodafo

Teleserv

India Hol

Mauritiu

FY 2010

1300 Crore 250Crore

2007

Vodafone PLC

Vodafo


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Vodafone PLC,

London

Vodafone,

Netherland

Vodafone India

Services (VISPL)

Vodafo

Teleserv

India Hol

Mauritiu

FY 2013

8500

Crore

3,700 C

Till now: Tax liability of Vodafone


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Hutch CGT: 8k (2007) 20k (2014) Interest,

penalty (100%) SC favour but IT clarification.

Transfer pricing(Mauritius)

3700 cr. (interespenalty)

y

Conciliation

(only CGT) (Aug.13)

Conciliatio

(CGT+ transf

Vodafone PL

London

Present stand


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Indian

Arbitration Act

Arbitration


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Arbitration Act 86

Foreign investment

Private judge, consent of both parties

Quick, convenient, inexpensive


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UNICITRAL


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U.N. commission on International TraLaw

by UNGA in 1966Mandate: dispute resolution, internatipayments

UNGA => 60 members => UNCITRAL

years)India member

Annual sessions alternatively @New and Vienna.

DTC 2013 revised guideline (14)


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DTC bill 2010

Standing committee on finance

Their suggestion => update DTC Bill

indirect transfers should be taxed in I

if the companies involved have at lea

percent of their assets located in the cCGP investment => Hutch-Essar (67%

DTC recent proposals


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taxable income right now DTC pro

2-5 lakh 10 10

>5 lakh 20 20>10 lakh 30 30

>10 crore 35

dividend >1crore

-- addition

Wealth Tax

>30 lakh, 1%

- only physical

assets

- phy

- fina

DTC reform Suggestion?


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1. Eliminate Wealth Tax (hardly 950 crundervaluation, evasion, complianc

high2. Indirect transfer CGT >50% assets.(30%; 30%)

3. No exemption to Religious/charity/S

bodies above *** Cr.4. (followup) BTT (NEXT lecture)

MCQ- Find incorrect statement


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A. CGT is an example of indirect taxlevied during sale of capital asse

B. During such transaction, Seller oCapital assets, is required to withthe tax.

C. Both A and BD. Neither A nor B

1. Skip 2. Attempt 3. Mark n

Review

MCQ- Find Incorrectstatement


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A. CGT is an example of indirecttaxlevied during sale of capital asse

(WRONG)B. During such transaction, Sellero

Capital assets, is required to withthe tax. (WRONG)



Review

MCQ- Find Correctstatement


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A. CGT is an example of indirecttaxlevied during sale of capital asse

(WRONG)B. During such transaction, Sellero

Capital assets, is required to withthe tax. (WRONG)



Review

MCQ- Find Correct statement


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A. State government can levy stampon insurance policies, shares and

debentures.B. Union government can levy tax o

transfer of shares and debenture



MCQ- Find Correct statement


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A. Stategovernment can levy stampon insurance policies & promisso

notes. (Union List I, #91) WRONB. Uniongovernment can levy tax o

transfer of shares and debenture(Union List I, #91) right



Nokia Tax Row


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Nokia Tax Row

#


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Royalty payment

CEO

Executives


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SHARE-HOLDERS

Board of Directors

Managing Director

Executives

Staff

PROFIT

DIVIDEND

Pantaloons


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Future Group

Quantitative restriction on royaltie


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Indian Company=> Foreign Parent

Maximum 8% royalty

Tax on Royalty


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Royalty tax on foreig

company

if India has DTAA with that

country (e.g Finland)10%

If India doesnt have DTAA

with that country 25%

N ki ft


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India

(100% ow

Nokia

Finland

software

100 Cr. Royalties

10 Cr.Royalties Tax

N ki


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TDSWithholding Tax

Indo-Finland DTA

India

Nokia

Finland90 Cr. Royalties

N kiRs.25,000 Cr


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India

Nokia

Finland

Rs.25,000 Cr

royalties

2006-2013

J 2013 IT id S i b d (T

Timeline 2013


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Jan 2013: IT raids Sriperumbudur (TaNadu) plant and offices in Chennai.

Feb: Nokias bank accounts ceasedApril 2013: Delhi HC unfreeze

1 I di Fi l d DTAA TDS R lti

Nokias argument


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1. India-Finland DTAA: TDS on Royaltiyes

2. but Computer software not in defin3. Computer software = RAW Materia

1 Mi ft 8 billi USD

Income Tax Departments argumen


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1. Microsoft 8 billion USD

2. But did not explain liability3. Quick action to prevent es

Ch i l t R 2500 C

Nokias Current Strategy


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Chennai plant = Rs.2500 Cr

Tax =6000+ cr.

Case can go on.Not part of Microsoft deal.

Continue production on contract

VRS offeredCase Defeat=> Attach factory.


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Nokia Tax Row

Royalties Tax


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Sriperumbu

SEZ

Royalties Tax

Corporate Tax

Export duty 1%Excise duty 0%

Domestic

4% VAT

Export proof not given

2009-12


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After thoughts

1.Fiscal imperialism

2.DTAA models

3.Avoidance until when?

Post WW1, League of nations


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Indian subsidiary

British Company

Indian Authorities

Dividend

Royalty Payment

Interest Payment

UK Authorities

Residual Profit

Source country..x

Tax agreem@Source Mo


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Vodafone PLC,

London

Vodafone,

Netherland Vodafone Indi

@Source Mo

90 Cr. Payment

V d f PLC

Tax agreem@Destinati


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Vodafone PLC,

London

Vodafone,

Netherland Vodafone Indi

ModelOECD

90 Cr. tax

Fiscal imperialism

GST: Destination based tax


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GST 6%4% State GST

(consumption)

(Destination)

2% I

(Sou

Foreign Parents


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Luxembourg

Cayman

Interest transfer

payments

Royalty transfer

payments

Developing

Countries

Costa Rica

Supply Chain

Transaction

Bermuda

BVI

Lease tra

payme

Intermediate

Holding Company

TAX HAVEN

1 DTAA: Legal technical definitionAfter thoughts


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1. DTAA: Legal, technical, definitionloopholes will remain

2. Will continue until India becomes adeveloped country.

3. Transfer pricing : under valuation Right

4. Royalty Tax: IT standRight (but whlate?)

5. Destination vs Source=Even GST saissue.

L8 P2 Vodafone Nokia

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