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CA P.V.S.S.Prasad
Hyderabad, India pvsatya.prasad@gmail.com
AGENDA
FINANCE BILL 2012 INTERNATIONAL TAX PROPOSALS
ROYALTIES WITHHOLDING TAXES TAX RESIDENCY CERTIFICATE (TRC) ADVANCE PRICING AGREEMENT (APA) GENERAL ANTI AVOIDANCE RULE (GAAR)
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Case laws neutralised: DIT Vs. Ericson A.B., New Delhi, (2011) 16 taxmann.com 371 (Delhi),
Motorola inc (SB) 95 ITD 269 Explanation 5. Royalty u/s 9(1)(vi) includes consideration in respect of any right, property or information, whether or not its possession or control with the taxpayer, it is used directly by the taxpayer, or its location is in India. Case law neutralised: DIT Vs. Ericson A.B., New Delhi, (2011) 16 taxmann.com 371 (Delhi)
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TRC essential to claim relief under treaty, but not a sufficient condition
for availing benefits. Effective from financial year 2012-13.
CBDT cir. 786 providing that Mauritian TRC was sufficient to avail
benefits of Indo Mauritius DTAA was upheld by SC in Azadi Bachao case , now neutralised Vodafone case followed for amendment.
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APA shall be valid for such years- in no case shall exceed five
consecutive years.
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GAAR
Insertion of Chapter XA Sec.95-102- General Anti Avoidance Rule
The provisions of this Chapter may apply to any step in, or a part of, the arrangement. Impermissible avoidance arrangement (IAA) means an arrangement, the main purpose or one of the main purposes of which is to obtain a tax benefit and it - creates rights and obligations not at arms length - results in abuse/misuse- provisions of this Act. - lacks/ deemed to lack commercial substance - not ordinarily applied for bona fide purposes
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GAAR
Presumption tax benefit- main purpose- unless proved otherwise.
Even if a step in, or a part of, the arrangement, is to obtain tax benefit, - main purpose gets tainted. Deemed to lack commercial substance if - substance/ effect of arrangement as a whole differs significantly from individual steps - round trip financing - accommodating party - offsetting/ cancelling each other - disguises the value, location, source, ownership
GAAR
Following not to be considered for commercial substance
- period for which the arrangement exists - payment of taxes directly/ indirectly - fact that an exit route is provided criteria for substance test of Vodafone case overruled Consequences not exhaustive - disregard / combine / recharacterise any step in/ part or whole - treating IAA as not entered into - disregard accommodating party - deeming persons connected as all one and the same
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GAAR
Consequences not exhaustive
- reallocation among the parties to the arrangement
any accrual, receipt, expenditure etc.
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GAAR v. DTAA
Section 90(2) provides for opting for IT provisions only when
more beneficial
treaty.
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Subsidiary of UK coy in Mauritius held shares in India coy, sold the same to German coy
and claimed exemption of capital gains in India as per Article 13(4) of DTAA. Revenue argued that beneficial owner is UK coy and claimed that Indo UK tax treaty would apply AAR held that as per Azadi Bachaos case of SC shares sold by Mauritius sub is
the share buy back. No dividend paid by Indian coy since 2003 and allowed the reserves
to grow in view of DDT. AAR accepted Revenues contention that buy back scheme is a tax avoidance scheme and held the same as colorable device. Income from buy back was held to be taxable in India as dividends and disallowed claim of capital gains exemption under Art.13(4) of DTAA - XYZ India in re [2012] 20 taxmann.com 89 (AAR)
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coys in future.
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Representation by various Chambers to attach onus on the Revenue to prove that there is impermissible arrangement, lest every transaction would be questioned. TRC - Azadi Bachaos case overruled by GAAR and amended S.90/90A.
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News Flash
- Govt. may dilute GAAR regulations by prescribing thresh hold of 150 million rupees ($2.9 million) - Govt. may defer implementation of GAAR by one year - Fin.min official says that the Govt. did not have Participatory Notes(PN) of FIIs in mind when introduced provisions in Budget regarding underlying asset transfers no capital gains tax - Finance Minister said that he may modify some provisions of GAAR - Substantial commercial interest in Mauritius critical for
THANKYOU
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