budget 2016 presentation - part i (transfer pricing and international tax)

BUDGET 2016

Unravelling Transfer Pricing and International Tax Proposals

3rd March 20161

Part I

Table of Contents

Sr. No. Topic of Amendment Slide Nos.

1 Tax Rate for Foreign Companies 4 - 5

2 No MAT on certain Foreign Companies 6 - 7 3 Equalisation Levy 8 - 94 Country By Country Report 10 - 245 New Transfer Pricing Documentation - Master File 25 - 276 Place of Effective Management 28 - 307 Changes in Penalty Provisions 31 - 34

8 Change in Deadline for Transfer Pricing Assessments 35 - 379 Extension of Deadline for Transfer Pricing Assessments 38 - 39

10 Tax Department cannot file appeal to ITAT against DRP’s Order 40 - 41

2

Table of Contents Sr. No. Topic of Amendment Slide Nos.

11 Section 206AA: Exemption to Non-Residents from PAN requirement 42 - 43

12 New Dispute Resolution Scheme 44 - 45

13 Stay of Demand 46 - 50

14 Changed Definition of Unlisted Securities Under Section 112(1)(c) 51 - 52

15 Special Notified Zone for Foreign Diamond Mining Companies 53 - 5416 Modification in Conditions of Special Tax Regime for Offshore Funds 55 - 5617 Storage and Sale of Crude Oil stored as part of Strategic Reserves 57 - 58

18 Incentives for International Financial Service Centers (IFSC) 59 - 60

19 General Anti Avoidance Rule (GAAR) 61 - 62

3

TAX RATES FOR FOREIGN COMPANIES

4

Tax Rates For Foreign Companies

40% 18.5%

Tax Rate MAT Rate

Surcharge at 2% if Total Income exceeds Rs. 1 Crore; and 5% if Total Income exceeds Rs. 10 Crores

Education Cess and Secondary & Higher Education cess at 3% of Income Tax and Surcharge

5

NO MAT ON CERTAIN FOREIGN COMPANIES

6

Section 115JB - No MAT on Foreign Company (WEF AY 2001-02)

No PE

Foreign Company

Last year, to give relief to FIIs, the MAT provisions were made inapplicable to the income of FIIs. However that amendment was WEF AY 2016-17. So, the issue for prior AYrs remained to be addressed.Now, in Budget 2016, Foreign Companies are made exempt from MAT, it they meet specified conditions.

Condition 1:

India

Outside India

India Should have a DTAA or TIEA

with the residence country of Foreign

Company

Condition 2: If condition 1 is not fulfilled then this condition should get fulfilled

No registration required under Companies Act

Foreign Company

India

Outside India

7

EQUALISATION LEVY

8

Equalisation Levy – Chapter VIII of the Finance Bill 2016

Resident Person Carrying on Business or

Profession

Non Resident

India

Non Resident having a PE

Outside India

Payment made for Specified Services Deduction at source

“Equalisation Levy” means the tax leviable on consideration received or receivable for any specified service.

“Specified Service” means online advertisement, any provision for digital advertising space, or any other facility or service for the purpose of online advertisement, and includes any other service as may be notified by the Central Government in this behalf

“Online” means a facility or service or right or benefit or access, that is obtained through the internet or any other form of digital or telecommunication network

Equalisation Levy will be charged at 6% (to be deducted at source) of consideration for Specified Service received/ receivable by a Non-Resident person from:

(i) A Person Resident in India who carries on business and profession; or(ii) A Non-Resident having a PE in India

Payment made for Specified Services

9


No Equalisation Levy to be deducted, where:

• Non-Resident Service Provider has a PE in India and Specified Service is effectively connected with such PE

• Aggregate consideration received in Financial Year from a Resident Person/ Non Resident having PE in India is less than Rs. 1 lakh

• The specified service is not availed by Resident Person/ PE of Non Resident for the purpose of carrying on business or profession – Equalisation Levy applies only to B – to – B transactions.

The Equalisation Levy will come into effect from the date which will be notified by the Central Government

10


Expenditure will not be allowed to the service-receiver on failure to deduct the equalisation levy

• As per proposed Section 40 (a) (ib) no deduction shall be allowed if any consideration paid or payable to a non-

resident for a specified service on which equalisation levy is deductible under the provisions of Chapter VIII of the

Finance Act, 2016, and such levy has not been deducted or after deduction, has not been paid on or before the

due date for filing of return of income

Income of Non-Resident Service Provider will be exempt

• The income arising from rendering of Specified Services will be exempt from income-tax under Sec. 10 (50)

• Only equalisation levy of 6% will be levied

11


DTAA Benefits will not be available

• The equalisation levy is not the same as “income-tax” ; equalisation levy is different from “income-tax

• In fact, equalisation levy is proposed to be charged under a Separate Chapter (Chapter VIII) of the Finance Bill

2016

• Hence, equalisation levy is not covered by the DTAAs/Tax Treaties

• So, no DTAA/Tax Treaty benefits will be available to the Non-Resident Service Provider

Reporting

• Resident Persons carrying on Business or Profession and Non-Residents having PE in India will have to –

File before the AO a Statement (after the end of the FY) in prescribed Form reporting the particulars of all

Specified Services received during the FY.

• The date of filing the Statement, the Form, and the Particulars to be filed, will be prescribed later

• On filing, the AO will process the Statements12


Penalties:

Default Liability to Pay

Failure to deduct the whole or any part of the levy

In addition to paying the levy, or interest if any, a penalty equal to the amount of levy that the Taxpayer failed to deduct

Deducted the levy, fails to pay such levy to the credit of Central Government

In addition to paying the levy and interest, a penalty of Rs. 1000 per day during which the failure continues, however, that the penalty under this clause shall not exceed the amount of levy that the Taxpayer failed to pay

Fails to furnish the Statement within the time prescribed

Rs. 100 per day during which the failure continues

• No penalty shall be imposable for any failure referred to in the said sections, if the assessee proves to the satisfaction of the AO that there was reasonable cause for the said failure.

• An assessee aggrieved by an order imposing penalty under this Chapter, may appeal to the CIT(A) within a period of thirty days from the date of receipt of the order of the AO.

13

COUNTRY BY COUNTRY REPORTING AND MASTER FILE

New Transfer Pricing Documentation

14

New Transfer Pricing Documentation(WEF 1st April 2017)

Organisation for Economic Co-operation and Development (“OECD”) through its BEPS Action Plan 13 has recommended revised standards for Transfer Pricing Documentation.

In order to implement the above, Finance Bill 2016 has proposed to implement a specific reporting regime in respect of Country-by-Country reporting (“CbyC”) and Master File.

Local File (in the form of “Transfer Pricing Study Report”) is already required to be filed under Sec. 92D read with Rule 10D

Master File

Local File

Country-by-Country Report

containing standardized information relevant for all MNE group members

referring specifically to material transactions of the local taxpayer

- information relating to the global allocation of the MNE's income and taxes paid; and- certain indicators of the location of economic activity within the MNE group

A three tiered structure for Transfer pricing documentation asProvided by BEPS Action Plan 13:

15

Part A. Country-by-Country Reporting (WEF 1st April 2017)

A new Section 286 is proposed to be introduced for CbyC reporting

CbyC Reporting is applicable for FY 16-17 to an International Group having Consolidated Revenue above € 750 million (equivalent INR 5395 crores approx) in FY 15-16.

CbyC Report is to be filed on or before the due date of furnishing of return of income

Reporting shall be in prescribed format, which shall be based on the Template provided by the OECD in BEPS Action Plan 13 Report.

The CbyC Report Template, as provided by the OECD, is given in next slides

Country-by-Country Report

- information relating to the global allocation of the MNE's income and taxes paid; and- certain indicators of the location of economic activity within the MNE group

16


Unrelated Party

Related Party

TotalNumber ofEmployees

Tangible Assets other than Cash and Cash Equivalents

Fiscal year concerned: Currency used:

Name of the MNE group:

Sr. No.

Entity Tax Jurisdiction

Revenues Profit (Loss) before

Income Tax

Income Tax Paid (on Cash

Basis)

Income TaxAccrued –Current Year

Stated Capital

Accumulated Earnings

Table 1. Overview of allocation of income, taxes and business activities by tax jurisdiction

CbyC Template as provided in OECD BEPS Action Plan 13 Report

17


Table 2. List of all the Constituent Entities of the MNE group included in each aggregation per tax jurisdiction

Res

earc

h an

d D

evel

opm

ent

Hol

ding

or M

anag

ing

Inte

llect

ual P

rope

rty

Purc

hasi

ng o

r Pro

cure

men

tM

anuf

actu

ring

or

Prod

uctio

nSa

les,

Mar

ketin

g or

D

istri

butio

nA

dmin

istra

tive,

M

anag

emen

t or S

uppo

rt Pr

ovis

ion

of S

ervi

ces t

o U

nrel

ated

Par

ties

Inte

rnal

Gro

up F

inan

ceR

egul

ated

Fin

anci

al

Serv

ices

Insu

ranc

eH

oldi

ng S

hare

s or O

ther

Eq

uity

inst

rum

ents

Dor

man

t

Oth

er

Constituent Entities

Resident in the Tax

Jurisdiction

Name of the Entity

Tax Jurisdiction of Organisation or Incorporation if

Different from Tax Jurisdiction of

Residence

Main Business Activity(ies)

Name of the MNE group:

Tax Jurisdiction

Fiscal year concerned:


18


Table 3. Additional Information

Name of the MNE group: Fiscal year concerned:

Please include any further brief information or explanation you consider necessary or that would facilitate the understanding of the compulsory information provided in the Country-by-Country Report.


19


In the report under BEPS Action Plan 13 the OECD has provided following guidance for preparing CbyC Report -

Template should cover the fiscal year of the Reporting Entity (see next-to-next Slide for Reporting Entity)

For constituent entities of a MNC Group, on a consistent basis, report should include (at the discretion of the Reporting Entity) :o Information for all Constituent Entities for the fiscal year of the Reporting MNE, oro information for the fiscal year of the relevant Constituent Entities ending on the same date as the fiscal year of

the Reporting MNE, or ending within the 12 month period preceding such date

Source of data for CbyC report could be: Consolidated Financials, Separate Entity Statutory Financials, Regulatory Financials or Internal Management Accounts

Brief description of sources of data used in preparing report to be given in Additional information section

Certain Important Points for preparation of CbyC report

20


Source of data once chosen should be consistently used from year to year in preparing the CbyC report

If there is a change in sources of data, then reasons for change and its consequences to be explained in the Additional Information section

Financials of the Foreign Subsidiaries to be translated to Reporting Entitiy’s functional currency –

conversion to be done at average exchange rate for the year stated in the Additional Information section of the template.

No need to make adjustment for difference in accounting principles used in different jurisdictions

It is not necessary to reconcile the figures of Revenue, Profit and Tax in the CbyC report with the figures in the Consolidated Financial Statements.

Certain Important Points for preparation of CbyC report

21


Reporting Entity –

Who shall be liable to file the Report?

OR

An Entity belonging to an International MNC Group, if the Parent Entity of the group is resident ;-

a) in a country with which India does not have an arrangement for exchange of the CbyC report; or

b) such country is not exchanging information with India even though there is an agreement; and

c) this fact has been intimated to the Entity by the prescribed authority;

A Parent Entity resident in India

22


• Penalty of Rs.5000/dayDefault < 1 month

• Penalty of Rs 15000/day for period exceeding 1 monthDefault > 1 month

• Penalty of Rs 50,000/day for default after service of order

Default continues even after order levying penalty

issued

What is the penalty for non-furnishing of the CbyC report?

The Reporting Entity may offer defence of reasonable cause (for delay) for non-levy of penalty

23


• Penalty of Rs.5000/dayDefault before

service of penalty order

• Penalty of Rs 50000/day for default beyond date of service

Default continues after service of penalty order

• Penalty of Rs 50000/dayWilful inaccurate submission

What is the Penalty for non-submission/ inaccurate submission of information before the prescribed authority?

The Reporting Entity may offer defence of reasonable cause (for delay) for non-levy of penalty

24

Part B. Master File (WEF 1st April 2017)

Master Filecontaining standardized information relevant for all MNE group members

Entities being constituent of an International MNC Group shall maintain and furnish the Master File

A Proviso to Section 92D(1) and a new sub-section (4) in Section 92 is proposed to be introduced

Penalty of Rs.5 lacs will be levied for non-furnishing of the Master File to prescribed authority

Reporting shall be in format which will be prescribed later

Manner of furnishing and time limit for furnishing Master File will be prescribed

It may be noted that, as of now, no Monetary Threshold is prescribed for maintaining and filing of the Master File - this means that, regardless of the Group Consolidated Turnover, the Master File has to be maintained by all the Entities which are part of an International MNC Group

25


Following are the broad points on which details are to be reported/disclosed in a Master file:

Organizational structureo Illustrate the legal and ownership structure

Description of MNC’s business

o Important drivers of business profit;o Description of supply chain for group’s five largest products/services;o Description of important service agreement;o Main geographic market for group’s products/services;o Important business restructuring transaction

MNC’s intangibleso A general description of the MNC’s overall strategy for the development, ownership and exploitation of

intangibles o Location of principal R&D facilities and R&D management.o List of intangibles important for Transfer pricing purposes and legal owner of the intangibleo List of important agreements among identified associated enterprises related to intangibles, including cost

contribution arrangements, principal research service agreements and licence agreements.26


Following are the broad points on which details are to be reported/disclosed in a Master file (Continued):

MNC’s intercompany financial transactionso General description of how group is financed, o Identification of any member of group that provide a central financing function for the groupo Description of groups general transfer pricing policies relating to financing arrangements

MNC’s financial and tax positionso List of Unilateral APAs and other tax rulings relating to allocation of income among countries

27

PLACE OF EFFECTIVE MANAGEMENT

28

Place of Effective ManagementThe POEM provision is deferred by 1 year. Hence, POEM provisions will now apply from FY 2016-17

The determination of residence, based on POEM, shall be now applicable from AY 2017-18

Transition Provisions (New Chapter XII-C) have been inserted in the I T Act 1961 • Problems may arise when a foreign company is held

to be resident, in course of assessment, under the POEM rule.

• In such scenario, the Foreign Company cannot comply with various procedural provisions (TDS, Filing of Return of Income, etc.) because the relevant FY would have already ended.

• So, Transition Provisions have been proposed in the Budget 2016.

Final POEM Guidelines from CBDT are still awaited

Foreign Company

POEM in India (Resident in India)

Will not only be taxed - in India - on Global Income , but will also have to comply with the provisions of the Income Tax Act, 1961 related to:

• Computation of Total Income (including Transfer Pricing, Filing of Return of Income, etc.)

• Treatment of Unabsorbed Depreciation

• Set-off and Carry Forward of Loss

• Collection & Recovery of Tax (TDS, etc.)

29

Place of Effective Management POEM Transition Provisions A transition mechanism is provided for a company which is incorporated outside India and has not earlier been

assessed to tax in India.

The Central Government will be empowered to notify exception, modification and adaptation subject to which, the provisions of the Act relating to –

computation of income, treatment of unabsorbed depreciation, setoff or carry forward and setoff of losses, special provision relating to avoidance of tax, and the collection and recovery of taxes

shall apply in a case where a foreign company is said to be resident in India due to its POEM being in India for the first time, and where such company has never been resident in India before.

These transition provisions would also cover any subsequent previous year upto the date of determination of POEM in an assessment proceedings.

However, once the transition is complete, then normal provision of the Act would apply.30

CHANGES IN THE PENALTY PROVISIONS

31

Changes in the Penalty Provisions

50% Penalty of Tax Payable

Under-Reporting of Income

New Penalty Provisions

In new penalty provisions in section 270A there will be two categories of penalties”i) 50% of Tax payable on Under-Reported income, andii) 200% of Tax Payable on Mis-Reported income

Mis-Reporting of Income

200% Penalty of Tax Payable

A Taxpayer shall be considered to have Under-Reported his Income if –

(a) the income assessed is greater than the income determined in the return processed under Sec. 143(1)(a);(b) the income assessed is greater than the maximum amount not chargeable to tax, where no return of income has been furnished;(c) the income reassessed is greater than the income assessed or reassessed immediately before such re assessment;(d) the amount of deemed total income assessed or reassessed under MAT is greater than the deemed total income determined in the return processed under Sec. 143(1)(a);(e) the amount of deemed total income assessed under MAT is greater than the maximum amount not chargeable to tax, where no return of income has been filed;

(f) the income assessed or reassessed has the effect of reducing the loss or converting such loss into income.

32


The Under-Reported income, for purpose of penalty, shall not include the amount of Under-Reported income represented by any addition or adjustment made by the TPO, where the Assessee has:

i) Maintained information and documents prescribed under section 92D (i.e. Rule 10 D)ii) Declared all International Transactions, andiii) Disclosed all the material facts relating to the International Transactions

Under-Reporting of Income - Exception for Transfer Pricing Cases

33


Penalty for Mis-Reporting of Income

A Taxpayer shall be considered to have Mis-Reported his income if there is:

i) misrepresentation or suppression of facts;ii) non-recording of investments in books of account;iii) claiming of expenditure not substantiated by evidence;iv) recording of false entry in books of account;v) failure to record any receipt in books of account having a bearing on total income;vi) failure to report any international transaction or deemed international transaction under Chapter X.

Failure to report any International Transaction or Deemed International Transaction, under Transfer Pricing Regulations, will be treated as Mis-Reporting of Income, and will, therefore, invite penalty of 200% of Tax Payable on Mis-Reported Income.

34

CHANGE IN DEADLINE FOR TRANSFER PRICING ASSESSMENTS

35

Change in Deadline for Transfer Pricing Assessments

Existing Provisions:

The Transfer Pricing Officer has to pass the Transfer Pricing Order before 60 days prior to the last date of making regular assessment [Section 92CA(3A)]

Under the existing provisions, the last date for making regular assessment under Section 143(3) in TP cases is 3 years (or 36 months) from the end of the assessment year.

So, the TPO has to pass order within 34 months from the end of the assessment year

Example:

For AY 2012-13, the TPO had to complete the TP assessment and pass the TP Order latest by 31st January 2016

(WEF 1ST June 2016)

36

Change in Deadline for Transfer Pricing Assessments

New Provisions:

WEF 1st June 2016, the time limit for completion of TP Assessment under Section 92CA(3) as well as of the regular assessment under Section 143(3) stands revised

The new time limits are:

i) For completion of Regular Assessment Under Section 143(3) in TP Cases is within 33 months from the end of the assessment year

ii) For Completion of TP Assessment Under Section 92CA(3) is within 31 months from the end of the assessment year

Example:

For AY 2013-14 the TPO has to pass TP Order latest by 30 October 2016, and then the AO has to pass Draft Assessment Order latest by 31st December 2016

37

EXTENTION OF TIMELINE FOR TRANSFER PRICING ASSESSMENT

38

Extension of Timeline for TP Assessments (WEF 1 st June 2016) • Time limit for completion of TP Assessments is extended, to allow sufficient time to TPO for completing TP Assessment,

when there is delay in receiving information from foreign jurisdiction, or when the assessment proceedings are stayed by court

• Where the TPO seeks information from the foreign jurisdiction, the time limit for completion of TP Assessment will be extended by ‘the time taken for receipt of the information’ and if after such extension the time remaining to complete the TP Assessment (on receipt of information) is less than 60 days, the last date to complete TP Assessment will be ‘further extended so that at least 60 days are available to the TPO’ to complete the TP Assessment

• Similar extension of time-limit will also be made in cases where the assessment proceedings are stayed by a court

Example:

1st April 2016

15th October 2016

30th October 2016(Deadline) 31th March 2017

30th May 2017(Revised Deadline)

• TPO Seeks information from Foreign Jurisdictions, or• Court Stays the Assessment Proceedings

Information received from foreign jurisdiction, or Court lifts the stay

39

TAX DEPARTMENT CANNOT FILE APPEAL TO ITAT AGAINST DRP’s ORDER

40

Tax Department cannot file appeal to ITAT against DRP’s Order (WEF 1st June 2016)

• In Transfer Pricing Cases and

• In cases of Foreign Companies

Dispute Resolution Panel (DRP)

WEF 1st June 2016, the Tax Department (i.e. the AO) cannot file any appeal to ITAT against the order passed by DRP

Only the Taxpayer can file appeal to ITAT against the order passed by DRP

Implication:• DRP will hesitate to pass any Order in favour of

Taxpayers (i.e. against the Revenue), because the Revenue will no longer have any appeal remedy

Passes DRP Direction under section 144C on objection of Taxpayer against additions proposed by AO/TPO

41

SECTION 206AA: EXEMPTION (from PAN) TO NON-RESIDENTS

42

Section 206AA: Exemptions to Non-Residents (WEF 1 st June 2016)

Resident Person

Non-Resident Person

India

Outside India

Current Position:

• Resident Indian has to withhold higher tax (20% TDS), on any sum or income or amount on which tax is deductible under Chapter XVIIB, if the Non-Resident recipient does not have a PAN in India (Section 206AA)

Proposal:• Section 206AA (20% TDS if no PAN) should not

apply to a Non-Resident, or to a Foreign Company, in respect of :- Interest on long-term bonds as referred to

in section 194LC Any other payment,

subject to such conditions as may be prescribed.

What document will suffice In lieu of PAN will be notified later.

Payment

43

NEW DISPUTE RESOLUTION SCHEME

44

New Dispute Resolution Scheme

Taxpayer

Specified Tax refers to Tax which has been determined in consequence of, or is validated by, Retrospective Amendment

An option to settle dispute is provided to Taxpayers (Like Vodafone) who are affected adversely by the Retrospective Amendments related to indirect transfers of assets located outside India

Scheme:1) Taxpayer has to file a “declaration” in respect of the

Specified Tax, which is in dispute as on 29th February 2016

2) Any appeal before CIT(A), ITAT, High Court or Supreme Court; or any Writ Petition filed before High Court or Supreme Court, must be withdrawn before filing the declaration

3) Any Notice or Claim arising from Arbitration or Mediation proceedings must be withdrawn, before filing the declaration

4) Taxpayer has to furnish an undertaking waiving the right to pursue any remedy or claim in relation to the Specified Tax

5) On filing of a valid declaration, the Designated CIT will determine, the tax payable

6) Then, the tax must be paid within 30 days

The Taxpayer (the Declarant) will get immunity from Penalty and also from Prosecution

Specified Tax

45

STAY OF DEMAND

46

Stay of Demand

Assessee

Assessing Officer

Payment of 15% of

disputed Demand while

appeal is pending before

CIT(A)

Grant of Stay of Demand

The CBDT has issued office memorandum F.No. 404/72/93-ITCC, Dated 29 February 2016, issuing guidelines to the Assessing Officer for Stay of Demand.

The Salient Features of the guidelines are highlighted in the next Slide.

In his Budget Speech the Finance Minister (‘Mr. Arun Jatley’) stated that the Income Tax Department is issuing instructions making it mandatory for the Assessing Officer (‘AO’) to grant Stay of Demand once the Assessee pays 15% of the Disputed Demand, while the appeal is pending before

CIT (Appeals)

47

Stay of Demand

Particulars Highlights

What new conditions have been put in place for stay of demand?

• The outstanding demand shall be disputed before CIT (A)• On payment of 15% of the disputed demand the AO shall grant stay of demand till disposal

of first appeal Subject to the two Exceptions listed below

Exception I – The AO can demand payment of a sum higher that 15%

If the AO is of the view that the nature of addition resulting in the disputed demand is such that payment of a lump sum amount higher than 15% is warranted (e.g. in a case where addition on the same issue has been confirmed by appellate authorities in earlier years or the decision of the Supreme Court /or jurisdictional High Court is in favour of Revenue or addition is based on credible evidence collected in a search or survey operation, etc.) or,

Exception II – The AO can allow payment of a sum lower that 15%

If the AO is of the view that the nature of addition resulting in the disputed demand is such that payment of a lump sum amount lower than 15% is warranted (e.g. in a case where addition on the same issue has been deleted by appellate authorities in earlier years or the decision of the Supreme Court or jurisdictional High Court is in favour of the assessee, etc.)

CBDT Office Memorandum F.No. 404/72/93-ITCC, Dated 29 February 2016

48

Stay of Demand


What should the AO do in cases of Exception I or Exception II?

The AO should refer the matter to the administrative Pr. CIT/ CIT who, after considering all relevant facts, shall decide the proportion of demand to be paid by the assesse, as lump sum payment, for granting stay of the balance demand.

What should the assessee do if he is still aggrieved, despite the AO granting stay of demand, after payment of 15% of disputed tax?

The assessee can approach the jurisdictional administrative Pr. CIT/ CIT for a review of the decision of the AO.

Time limit for disposing of the stay application by AO

The AO shall dispose of the stay petition within 2 weeks of its filing.

Time Limit before Pr. CIT or CIT of disposing off AO’s reference application or assessee’s review application

AO’s reference application or assessee’s review application shall be disposed of by the Pr. CIT/ CIT within 2 weeks of the AO making such reference, or the assessee filing such review, as the case may be.


49

Stay of Demand


Conditions that the AO can impose for granting stay of demand

The AO may impose such conditions as he may think fit. He may, among other things -

• require an undertaking from the assessee that the assessee will cooperate in the early disposal of appeal failing which the stay order will be cancelled;

• reserve the right to review the order passed: after expiry of reasonable period (say 6 months), or if the assessee has not cooperated in the early disposal of appeal, or where a subsequent pronouncement by a higher appellate authority or court alters the

above situations;• reserve the right to adjust refunds arising, if any, against the demand, to the extent of the

amount required for granting stay.

Effective date The new guidelines for stay came into effect immediately from 29 February 2016


50

CHANGED DEFINITION OF UNLISTED SECURITIES UNDER SECTION 112(1)(c)

51

Changed Definition of “Unlisted Securities” under Section 112(1)(c)

Non-Resident/ Foreign

Company However, no benefit of indexation of cost of acquisition and no benefit of ‘conversion of cost & consideration in foreign currency’, is to be allowed while computing the LTCG

Whether Shares of a Private Company are “Securities”?

Under the Existing provisions of Section 112(1)(c)(iii) a Non Resident or a Foreign Company has to pay 10% tax on Long Term Capital Gains arising from the transfer of Unlisted SecuritiesTransferee

Transfer

Unlisted Securities (Long

Term)

Unlisted Securities (Long

Term)

Issue:

New Provisions (WEF AY 2017-18):

To clarify the above issue, “Shares of a Private Company” are also now specifically included in Section 112(1)(c)(iii)

Existing Provisions:

52

SPECIAL NOTIFIED ZONE FOR FOREIGN DIAMOND MINING COMPANIES

53

Special Notified Zone – Foreign Diamond Mining Companies (Retrospectively from 1 st April 2016)

Foreign Diamond Mining Company

Special Notified Zone

Under Section 9, No Income shall be deemed to accrue or arise in India to a Foreign Diamond Mining Company through, or from, activities confined to display of uncut & unassorted diamonds in any Special Notified Zone

Outside India India

Display of uncut & unassorted

Diamonds

54

MODIFICATION IN CONDITIONS OF SPECIAL TAX REGIME FOR OFFSHORE FUNDS

55

Modification in conditions of Special Tax Regime for Off-shore Funds (Section 9A)

Last year, Section 9A was inserted to facilitate relocation of Fund Managers of offshore funds to India

Offshore Fund Fund Manager

• Among other things, last year, 13 eligibility conditions were prescribed in Section 9A(3)

• Out of those 13 conditions, following 2 conditions raised some concerns:a) the fund should be a resident of a country or a specified territory with which India has a DTAA or TIEAb) the fund shall not carry on or control and manage, directly or indirectly, any business in India or from India

• This year the above mentioned 2 conditions have been relaxed as under (WEF AY 2017-18):

a) The fund can be established or incorporated or registered in a country or a specified territory notified by the Central Government in this behalf

b) the condition of control and management of any business “from India” is removed

Investments in India

Outside India India

Investing Into India

Mere Presence of Fund Manager is not a Business

Connection of Offshore Fund into India

56

STORAGE AND SALE OF CRUDE OIL STORED AS PART OF STARTEGIC RESERVES

57

Storage and Sale of Crude Oil stored as part of Strategic Reserves

Storage of Crude Oil

Foreign National Oil Companies/ Foreign

Oil MNCs

Resident Person

Sale

India

Outside India

New Section 10 (48A) (WEF 1st April 2016)

To encourage Foreign National Oil Companies and Oil MNCs to store their crude oil in India & to build up strategic oil reserves, it is proposed - To exempt the income of Foreign Company

on account of storage of crude oil in a facility in India and sale of crude oil, from such facility, to any Resident Person.

Conditions to be fulfilled:

I such storage and sale by the Foreign Company is pursuant to an Agreement or an Arrangement entered into by the Central Government or approved by the Central Government; and

II. having regard to the national interest, the Foreign Company and the Agreement or Arrangement are notified by the Central Government in this behalf.

58

INCENTIVES FOR IFSC

59

Incentives for International Financial Service Centres (IFSC) (WEF 1st April 2017)

Unit Established on or after 1st April 2016

IFSC

• MAT only at 9%, and• No DDT on distribution

of Dividend

Income solely in Foreign Exchange

If the Stock Exchange is located in IFSC• No Securities Transaction Tax (STT)

• No Capital Gain Tax, for investors, from Foreign Currency Transactions, even when no STT has been paid

Stock Exchange

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GENERAL ANTI AVOIDANCE RULE

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General Anti Avoidance Rule (GAAR)

Last year GAAR was deferred by 2 years, and was thus made applicable from AY 2018-19 i.e. FY 2017-18

This year in his Budget Speech, the FM has reiterated the commitment of the Government to

implement GAAR from FY 2017-18

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Thank You

Nilesh Patel - CPA (USA), Ex-Addl CIT (Former IRS Officer) M:+919819060323 E: [email protected] W:

www.taxwize.in 63

budget 2016 presentation - part i (transfer pricing and international tax)

Economy & Finance