Corporate and International Tax Corporate and International Tax Corporate and International Tax

As multinationals across the world look to invest or establish themselves in India and begin to transact more actively, it is important that India’s tax and regulatory policies are well understood for enhancing growth and success opportunities. Similarly, the Indian home-grown business houses interested in or aiming to go global or get listed on the overseas bourses need to understand and stride through an interplay of cross-border taxes and regulations. Navigating the corporate tax and regulatory framework for carrying on any activity, along with domain industry knowledge, is now an integral part of doing business in India or overseas. 

Since the last few years, the emphasis laid down by the Indian revenue authorities is towards expansion of the tax base through digitisation and e-governance. Further, there could be situations of tax uncertainty and litigation which might result in tax demands. Accordingly, it has become crucial to understand the potential impact of new developments in the tax and regulatory spheres and consequently prepare for the challenges.

KPMG in India’s International Tax and Regulatory Services team comprises dedicated tax professionals with in-depth technical knowledge and practical experience, who the client can trust in relation to corporate tax and regulatory matters. The team provides advise on various tax matters and helps clients manage the complexities of multiple tax systems and cross-border challenges. The following recent developments require corporate houses to gear up for the continuously changing tax landscape:-

The Organization for Economic Co-operation and Development (OECD) launched 15 Action Plans on Base Erosion and Profit Shifting in July 2013 with an objective of an international collaboration to end tax avoidance. The Action plans developed by OECD recognise the importance of a borderless digital economy and proposed to develop a new set of standards to prevent BEPS and to equip governments with domestic and international instruments to prevent corporations from paying little or no taxes. Certain profits may also be untaxed as a result of the application of existing international tax rules, which the OECD believes have not kept pace with modern business models. With an objective to expedite and streamline the implementation of the measures developed to address BEPS and amend bilateral tax treaties, over 100 jurisdictions concluded negotiations on the Multilateral Convention to implement Tax Treaty related measures to prevent BEPS.

Introduction of GAAR is a significant development in India’s tax policy impacting decisions relating to structuring of a transaction or entering into an arrangement. GAAR empowers the revenue authorities to declare a transaction/arrangement as an impermissible avoidance arrangement, thereby determining and levying taxes as may be deemed appropriate, thereon denying benefits originally claimed (including those under the tax treaty). More and more countries are adopting GAAR to check aggressive tax planning and reduce incidence of tax avoidance. In India, GAAR came into effect from 1 April 2017

Finance Act, 2020 amended provisions relating to TCS with effect from 1 October 2020 to provide that seller of goods shall collect tax at 0.1 per cent (0.075 per cent up to 31.03.2021) if the receipt of sale consideration from a buyer exceeds INR50 lakh in the financial year. Further, to reduce the compliance burden, it has been provided that a seller would be required to collect tax only if his turnover exceeds Rs. 10 crore in the previous financial year. Moreover, the export of goods has also been exempted from the applicability of these provisions. The new TCS provisions have left some unanswered questions which need to be evaluated from each client’s perspective.

Government of India recently introduced Section 194-O through the Finance Act 2020 under the Income-tax Act with effect from 01st October 2020. Section 194-O of the Act states that an e-commerce operator shall deduct tax at the time of credit to the e-commerce participant at the rate of 1% on the gross amount of the sale of goods or services or both.

New and complex business models have come with a set of new tax challenges in terms of nexus, characterisation and valuation of data and user contribution. To provide clarity on the same, Government of India introduced provisions of EQL to give effect to one of the recommendations of the BEPS Action Plan 1. Such levy would be at the rate of 6% of the gross consideration to be paid to a non-resident service provider for specified services like online advertisement. The government further expanded the scope of EQL with effect from 1 April 2020 by adding a new levy of 2% on the consideration received/receivable by an e-commerce operator from e-commerce supply or services. The wordings of the new provisions are wide enough to bring into its ambit more than the normally understood connotation of online marketplace intermediaries and aggregators.

A direct tax scheme announced in Budget 2020, for settling tax disputes between assessees and the income tax department. As per the scheme income tax disputes settled under it cannot be reopened in any other proceeding by the income tax department or any other designated authority. Many assessees may want to avail this scheme to reduce their ongoing litigation at various forums like ITAT etc.

Government introduced the Faceless Assessment and appeal Scheme to provide greater transparency, efficiency and accountability in Income Tax assessment/appeals and to eliminate the interface between the officers and the assessee during the course of proceedings. While it is a step-in right direction, new scheme brings new challenges as well such as stringent compliance dates, no personal hearing, limited adjournments etc. Thus, the assesses have to keep all the documents ready basis the past experience and prepare concise and to the point submissions.

The government finally heard the hue and cry of the companies by abolishing DDT on companies and re-introducing the conventional system of taxation of dividend i.e. in the hands of the shareholders. DDT was abolished in 2002 but limited administrative success’and long drawn process reintroduced DDT in 2003. It would thus be interesting to watch in coming times, if the history will repeat or DDT stands abolished permanently.