International taxation has turned highly dynamic in recent years due to OECD-G20’s BEPS (Base Erosion Profit Shifting) Action plans which are the driving factor for changes related to cross border taxation. Since last few years, Indian Tax Laws have witnessed changes which are in response to BEPS Action Plans. Widening scope of Business Connection through ‘Significant Economic Presence’ or expanding scope of Agency Permanent Establishment are some of the glaring examples emerging from BEPS Action plans.
The introduction of taxing capital gains arising on account of Indirect Transfer (the transfer taking place between two overseas companies having underlying business interest in India) and separate reporting of such transaction, Country by Country Reports under Transfer Pricing has led to increase in complexities and compliance requirements. The trend around the globe is to protect the tax base of the respective country through introducing stringent norms of source taxation and this approach is resulting in rapid changes in the cross border taxation and the transfer pricing laws.
We render services in the area of Transfer Pricing Study & Documentation, compliance with respect to remittances by Resident tax payers to foreign country/Non Resident/Non Resident Indians. This mainly involves issuing Form 15CB and filing Form 15CA. Even in case where there is no liability to withhold/deduct tax, there can be an obligation to file Form 15CA. Many a times, the burden of tax is on Indian payer and therefore it requires proper analysis of transaction, its characterization in terms of provisions of Income Tax Act as well as treaty to arrive at proper tax deduction obligation which in many cases could be NIL due to tax treaty benefits.
NRIs are allowed to repatriate USD 1 Million every year from balances held in their Non Resident Ordinary (NRO) Account, including credit/transfer to their Non Resident External (NRE) Account. Bankers/Authorized Dealers insists upon CA Certificate in Form 15CB for determining the amounts that are transferred to NRE are such on which due tax has been paid. NRE being fully repatriable and also considering that interest on such deposit is tax exempt from Indian Income tax, it is a preferred mode for NRIs to opt for such transfer.
In case Foreign Enterprise has long lasting presence in India it can have Permanent Establishment (PE) exposure and related tax issues as it leads to direct tax exposure in India and requiring such foreign company to file tax returns in India. In such cases, it can also trigger tax exposure for foreign employees of such PE for their personal taxation.
The introduction of furnishing Annual Information Report (AIR) by independent agencies to tax department (like Mutual Funds, Registrar of Properties etc) has led to considerable increase in matching of data leading to need of timely compliance and in few cases scrutiny by tax department wherever there is a mismatch.
On Regulatory front with respect to cross border investments, the Foreign Exchange Management Act (FEMA) is fairly settled, however, the reporting requirements and nuances of FEMA make it a specialised subject. Capital account transactions still require reporting under FEMA. The Foreign Direct Investment in India (FDI) and Overseas Direct Investment (ODI) are prime transactions requiring documentation, reporting to Reserve Bank of India (RBI) and valuation. Since major business sectors of Indian economy are open to foreign investment, India with its growing urban and young population offers great business opportunity for Foreign Direct Investment.