International taxationPractical Issues in Income tax and Wealth

tax

Key FDI Sectors Mineral and Clay based products Traditional Industries Tourism Auto Components Agro Processing

Vital Statistics

International taxation is the study of tax implication on a transaction which involves at least one non resident.

International taxation predominantly involves understanding of domestic taxation laws of the respective countries as well as the DTAA.

International Taxation????

Scope of total income is determined based on the following:

Place of accrual of income Place of receipt of income Residential status of the assessee

Scope of Total Income

Source of Income Resident and

Ordinarily

resident

Resident and

Not Ordinarily

resident

Non Resident

Indian Income:

Income earned and received or

deemed to be earned and received

in India

Yes Yes Yes

Income earned or deemed to be

earned outside India but received

in India

Yes Yes Yes

Income earned or deemed to be

earned in India but received

outside India

Yes Yes Yes

Foreign Income:

Income earned and received or

deemed to be earned and received

outside India from a business

controlled from India

Yes Yes No

Income earned and received or

deemed to be earned and received

outside India from a business

controlled from outside India

Yes No No

Scope of Total Income

Nature of Income Condition

Business Income When there is business connection in India

Property income Property or asset source is in India

Income from

transfer of a capital

asset

When the capital asset is in India

Income from

Salaries

Where services are rendered in India

Indian citizen, working for the Government of India and rendering

services outside India

Dividend Income Dividend payable/paid by an Indian Company

Interest, Royalty

and Fees for

Technical Services

If the income is received from:

- Government of India

- A resident assessee except where such payment is for business

outside India

- A non resident assessee where the payment pertains to

business in India

Income Deemed to Accrue of Arise in India – Sec 9

Practical Issues in Income Tax

.

Non residents receiving payments from India need to obtain PAN

PAN is however required only if payment is subject to TDS under Chapter XVIIB

Non furnishing of PAN would lead to deduction of tax at higher of:◦ at the rate specified in the relevant provision of

this Act; or◦ at the rate or rates in force; or◦ at the rate of 20%

Sec 206 AA

Payments for foreign purchases Payments for foreign contracts Payment of export commission Purchase of property from non resident

CBDT has issued circular no 7/2009 dated 22-10-2009 withdrawing circulars No 23 / 1969, No 163/1975 and No 786/2000.

Sec 195

Indian address is not mandatory In the case of foreign companies proof of

foreign address needs to be attested by Indian embassy

Other procedures similar to that of a resident

Obtaining PAN for Non residents

Oppurtunities◦ All remittances outside India must be

accompanied with CA certificate◦ Assessee has to furnish E Form 15CA

Risks◦ Huge risk of scrutiny by Income Tax Department◦ Cost of substantiating claims need to be factored

into◦ Rewards do not generally match the risks

Form 15CB

An individual, originally working for a foreign parent, is deputed to Indian salary

He receives salary from both the Indian subsidiary and foreign parent

TDS u/s 192 shall be deducted on both the salaries

Salary to a person on Deputation

Assessee company had entered into technical assistance agreement with a Japanese company.

As per that agreement, assessee was to be given assistance of Japanese engineers for training engineers of assessee in respect of which it made certain payments to Japanese company.

Assessee had obtained a certificate for nil deduction u/s 195(2)

Transaction subsequently assessed taxable…

Assessing Officer treated said payments as fees for technical services and assessee as an assessee-in-default for not deducting tax at source on said payments

Since assessee had been granted no objection certificate under section 195(2) permitting non-deduction of tax at source and said certificate had never been cancelled, assessee was not liable to deduct tax at source and, therefore, it could not be treated as an assessee-in-default

CIT vs Swaraj Mazda [2011] 198 TAXMAN 305 (PUNJ. & HAR.)

Transaction subsequently assessed taxable…

Assessee is not required to deduct tax at source under section 195 in respect of payment made to foreign companies towards bandwidth charges because same are not in the nature of royalty, fees for technical services or relate to any item of expenditure covered under section 40(a)(i)

Infosys Technologies Ltd.vs Deputy CIT [2011] 10 taxmann.com 1 (BANG. - ITAT)

Payment for Bandwidth charges

The moment a remittance is made to a non-resident, obligation to deduct tax at source does not arise; it arises only when such remittance is a sum chargeable under Act, i.e., chargeable under sections 4, 5 and 9

Section 195(2) is not a mere provision to provide information to ITO(TDS) so that department can keep track of remittances being made to non-residents outside India; rather it gets attracted to cases where payment made is a composite payment in which certain proportion of payment has an element of 'income' chargeable to tax in India and payer seeks a determination of appropriate proportion of sum chargeable

GE India Technology Cen. (P.) Ltd. [2010] 193 TAXMAN 234 (SC)

When to deduct TDS u/s 195

Wealth Tax.

For the Financial year 2008-09:- Estimated tax collection of Rs 400 crores- Estimated tax collection cost of Rs 174

crores

Projections for the Financial 2009-10:- Projected tax collection of Rs 425 crores- Projected tax collection cost of Rs 216

crores

**Source: The Economic Times dated 8th April 2009

Statistics of Wealth tax **

For every rupee spent, the Government earns Rs 1.97 of wealth tax.

For every Re spent, the Government collects Rs 60 of income tax (all categories)

For every Re spent, the Government collects Rs 701 of corporate income tax

Cost of collection (Direct Taxes) in other countries:◦ Britain : 1.53%◦ Germany : 2.35%◦ Australia : 1.15%

Comparitive Statistics

Note: In Austria, Denmark, Germany, Finland,

Iceland, Spain and Luxembourg wealth tax was abolished during the last decade

The concept of Wealth tax does not exist in Belgium and Great Britain.

Global Wealth Tax Parallels*Nomenclature Country

Solidarity tax on Wealth France

Wealth tax Greece, Norway, Switzerland and Netherlands

Property tax US

Practical Issues in Wealth tax – Indian

Repatriates.

Scope of Taxation

Assessee Residential Status Assets

in

India

Debts

in

India

Assets

outside

India

Debts

outside

IndiaIndividual –

Citizen of India

Resident and ordinary

resident

Included Deductib

le

Included Deductible

Individual – any

other case

including foreign

national who is a

resident and

ordinary resident

Indian Citizens: Non

resident or not ordinary

resident

Foreign Nationals:

Resident or non resident.

Included Deductib

le

Not included Not

Deductible

HUFResident and ordinary

resident

Included Deductib

le

Included Deductible

Non resident or not ordinary

resident

Included Deductib

le

Not included Not

Deductible

CompanyResident Included Deductib

le

Included Deductible

Non Resident Included Deductib

le

Not included Not

Deductible

1% on taxable wealth in excess of Rs 30 lacs

Exemption limit of Rs 30 lacs is applicable to all category of assessees

No surcharge levy on wealth tax

No cess levy on wealth tax

Rate of Taxation

Exemption u/s 5(v) is available provided: Assessee is an individual Assessee is a citizen of India or a PIO Assessee was ordinarily residing in a

foreign country Assessee has returned to India with an

intention to permanently reside in India

Non residents returning to India

The term “ordinarily residing” has not been defined

Madras High Court in the case of Periannan vs CWT has enunciated that:◦ Ordinarily residing refers to residence of long

duration outside India ◦ A person for whom India is a permanent residence

cannot claim exemption under this section merely by travelling abroad and residing abroad for a period of one year and thereafter returning to his own country

“Ordinarily Residing” in a Foreign Country

Money Value of assets brought into India Value of assets acquired out of such money:

◦ Within one year prior to the date of return◦ Any time after the date of return

Period of Exemption:- 7 consecutive previous years beginning

from the year of return.

Assets Exempted

Kerala accounts for 20% of India’s gold consumption annually and India in turn accounts for about one-fifth of the world’s annual gold sales.

According to World Gold Council, in 2009 the consumption of gold in India was 578.5 tons. It rose to 963.1 tons (worth Rs 1,73,330 crore) in 2010, with an increase of 68 per cent.

Vital Facts

Gold in excess of 150 sovereigns Purchase of Luxury cars (Benz C Class and

above) without loans Cash in excess of Rs 50k for individual / HUF More than one self occupied property Property under construction held abroad Double taxation

Practical Issues

Non resident & International

Taxation.

Divakar Vijayasarathy & Associates

Sec 115BBD proposed for the Assessment year 2011-12 only

Dividend income from foreign subsidiaries shall be taxable @ 15% of gross dividend

No deduction is allowed

Provisions applicable only for Indian companies

Dividends not to include deemed dividend u/s 2(22)(e).

Taxation of Foreign Dividends

Divakar Vijayasarathy & Associates

Benefit applicable for only one year

Subsidiary holding need not carry voting rights.

Professional Take Aways

Divakar Vijayasarathy & Associates

Every non resident having a liaison office in India shall submit a statement of activities within 60 days from the end of the financial year in the prescribed form – Sec 285.

This amendment shall be effective 1st of June 2011.

Liaison Office Intimation

Divakar Vijayasarathy & Associates

Interest income on infrastructure debt fund, earned by a non resident, shall be taxable at 5% of the gross amount- Sec 115A.

A new section 194LB has been proposed to provide for TDS @ 5% on payments made by such funds.

Income of a notified infrastructure debt fund shall be fully exempt u/s 10(47)

Effective 1st of June 2011.

Interest on Infrastructure Debt

Divakar Vijayasarathy & Associates

It is proposed to provide that instead of the fixed variation of +-5%, the allowable variation will be such percentage as may be notified- Sec 92C.

TPO shall have the jurisdiction to determine ALP in respect of other international transactions, which are noticed by him subsequently, in the course of proceedings before him- Sec 92CA.

Transfer Pricing

Divakar Vijayasarathy & Associates

TPO shall be empowered to conduct on the spot survey and verification and exercise the powers given u/s 133A- Sec 92CA(7)

It is proposed to extend the due date for corporate assessees, to whom the provisions of transfer pricing apply, to 30th of November.(The amendment is effective from 1st of April 2011)

Transfer Pricing

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