Central Board of Direct Taxes cuts profit margin for safe harbour rules

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Safe harbour rules are defined as circumstances under which the income-tax authorities accept the transfer pricing declared by the assessee.

Given the lukewarm response to the safe harbour mechanism for transfer pricing, Central Board of Direct Taxes (CBDT) on Thursday cut the operating profit margin for information technology-enabled services, knowledge process outsourcing services (KPOs) and research and development (R&D) related to software and generic pharmaceutical drugs companies.

The new rules will apply to transactions of up to Rs 200 crore. Safe harbour rules, a dispute-avoidance mechanism, are defined as circumstances under which the income-tax authorities accept the transfer pricing declared by the assessee. The rule provides the minimum operating profit margin in relation to operating expenses that a taxpayer is expected to earn for certain categories of international transactions. The same is acceptable to the income tax authorities as arm’s length price (ALP). The rules are applicable for transactions between group companies based in different countries so that a fair price or ALP is arrived at by the tax authorities. The rules have come into effect from April 1 this year and will continue to remain in force for two successive years up to assessment year 2019-2020, the board said in a statement

For software development services, safe harbour margins have been reduced to a peak rate of 18% from 22% in the previous regime. Similarly, for KPOs, a graded structure of three different rates of 24%, 21% and 18% has been provided, based on employee cost to operating cost ratio, replacing the single rate of 25% earlier. For the third category of R&D services, the margins have been reduced to 24% from 30% and 29%, respectively, earlier. “The lukewarm response to the earlier safe habour scheme was on account of the high rates. Thus, taxpayers opted for unilateral APA process instead. The revised scheme has been designed to attract small to medium business, especially in the IT/ITeS segment, so as to give them a viable alternative to APA regime, which is both time consuming and expensive. The rates for IT/ITeS segment are more or less in line with the APAs being settled and hence the safe harbour scheme, this time, should get a positive response,” Arun Chhabra, director, Grant Thornton Advisory, said.

Assessees eligible under the present safe harbour regime up to AY 2017-18 shall also have the right to choose the safe harbour option most beneficial to them, the board said. It added that a new category of transactions being “Receipt of Low Value-Adding Intra-Group Services” has been introduced. “The revised safe harbour rules are a welcome step towards making safe harbour a viable alternate dispute resolution mechanism. Key highlights are: Reduction of margins for service units, introduction of safe harbour rate for low-valued services (in line with BEPS recommendation) and well-thought scheme for knowledge process outsourcing companies. Overall, it’s a welcome step towards strengthening the safe harbour option for small and mid size companies,” Kunj Vaidya, leader transfer pricing, Price Waterhouse & Co, said.

Source: http://www.financialexpress.com/economy/central-board-of-direct-taxes-cuts-profit-margin-for-safe-harbour-rules/708984/

Foreign fund inflows hit a record high

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Foreign fund inflows hit a record high. So far this year, India has seen an inflow of nearly Rs 1.25 lakh crore.

The Indian rupee has been one of the best performing currencies among the emerging markets since the beginning of 2017, thanks to robust macroeconomic factors and attractive domestic bond yields. As a result, foreign fund inflows have hit a record.

 

So far this year, India has seen an inflow of nearly Rs 1.25 lakh crore, including Rs 73,200 crore in bonds, against an outflow of Rs 25,500 crore, a year ago. This is higher than foreign fund inflows in the first half of any previous calendar year, even as only the first week of June has got over so far. Given the present economic scenario, rupee is expected to sustain these levels and remain range bound.

 

India’s current account deficit has consistently improved over the years — from 4.8% of GDP in 2012-13 to expected 0.9 per cent in 2016-17, helped by weak oil prices, which constitute as much as 40-50 per cent of India’s imports.

 

With brent crude oil prices continuing to remain weak, down more than 8 per cent in the past two weeks and 1 per cent year-on-year, and the Reserve Bank of India keeping benchmark interest rate unchanged in its Wednesday policy meeting, the rupee is likely to continue to trade at the current levels vis-à-vis the US dollar in the short to medium term.

Source: http://economictimes.indiatimes.com/articleshow/59046239.cms

 

Foreign investors pour in $4.2 billion in May, mostly in Debt

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According to latest depository data, FPIs invested a net Rs. 7,711 crore in equities last month, while they poured Rs. 19,155 crore in the debt markets.

Foreign investors have pumped $4.2 billion in the country’s capital market in May due to finalisation of GST rates for bulk of the items and prediction of a normal monsoon.

Interestingly, most of the funds have been invested in the debt markets by the foreign portfolio investors (FPIs).

“The differential spread between 10-year bond yields in the US and India is still around 4.5-5 per cent, this, coupled with stable outlook for the Indian currency bodes well for FPI flows into debt market,” Sharekhan Head Advisory Hemang Jani said.

According to latest depository data, FPIs invested a net Rs. 7,711 crore in equities last month, while they poured Rs. 19,155 crore in the debt markets during the period under review, translating into a net inflow of Rs. 26,866 crore ($4.2 billion).

This comes following a net inflow of close to Rs. 94,900 crore in the last three months (February-April) on several factors, including expectations that BJP’s victory in recently held assembly polls will accelerate the pace of reforms.

Prior to that, such investors had pulled out over Rs. 3,496 crore from debt markets in January.

“FPIs sold into Indian equities in the first few days of May. It was only in the second week that they started buying. The most prominent reason is expectation from the government that it would speed up development and economic reforms in their last two years in office before going for elections in 2019.

“The government finalising GST rates and expectation that it will be rolled out on time, in addition to forecast of normal monsoon also led to positive sentiments,” Himanshu Srivastava, Senior Analyst Manager Research at Morningstar India said.

Going forward, there are few challenges but not strong enough to disrupt the current trend. Markets and the rupee are surging higher, which offer a good profit booking opportunity for FPIs. They did that in April and they can again use this opportunity to book profits going forward.

“The flow is largely driven by expectation, and for the flows to sustain, the government has to meet those expectation. Monsoon will be another thing to watch out for as it tends to have big economic implications,” he added.

With the latest inflow, total investment in capital markets (equity and debt) has reached Rs. 1.21 lakh crore this year.

Source: http://profit.ndtv.com/news/market/article-foreign-investors-pour-in-4-2-billion-in-may-mostly-in-debt-1707650

World Bank projects 7.2% growth rate for India in 2017

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Even as the World Bank has revised India’s growth figures by 0.4 percentage points as compared to its January forecast, India remains the fastest growing major economy in the world, the World Bank officials said.

Noting that India is recovering from the temporary adverse effects of demonetisation, the World Bank has projected a strong 7.2 per cent growth rate for India this year against 6.8 per cent growth in 2016.

Even as the World Bank has revised India’s growth figures by 0.4 percentage points as compared to its January forecast, India remains the fastest growing major economy in the world, the World Bank officials said.

The growth projections for China remains unchanged at 6.5 per cent for 2017 and then 6.3 per cent for the next two years 2018 and 2019. The World Bank in its latest Global Economic Prospects, projects India’s growth to 7.5 per cent in 2018 and 7.7 per cent in 2019.

In both the years, the forecast has been downgraded by 0.3 per cent and 0.1 percentage points as compared to the January 2017 forecast.

“A downgrade to India’s fast pace of expansion,” the World Bank said, is “mainly reflecting a softer-than-expected recovery in private investment.”

In 2016, in India, activity was underpinned by favourable monsoon rains that supported agriculture and rural consumption, an increase in infrastructure spending, and robust government consumption, the report said.

“In India, recent data indicate a rebound this year, with the easing of cash shortages and rising exports. An increase in government spending in India, including on capital formation, has partially offset soft private investment,” it said.

“While manufacturing Purchasing Managers’ Indexes have generally picked up, industrial production has been mixed,” the Bank said in its latest report.

Observing that India’s growth is forecast to increase to 7.2 per cent in Financial Year 2017 and accelerate to 7.7 per cent by 2019, is slightly below previous projections, the Bank said this outlook mainly reflects a more protracted recovery in private investment than previously envisaged.

“Nonetheless, domestic demand is expected to remain strong, supported by ongoing policy reforms, especially the introduction of the nationwide Goods and Services Tax (GST),” it said.

“Significant gains by the ruling party in state elections should support the government’s economic reform agenda, which aims at unlocking supply constraints, and creating a business environment that is more conducive to private investment,” the Bank said.

M Ayhan Kose, Director of the World Bank Group’s Development Prospects Group, in response to a question, underscored the need of reforms in the banking sector.

“The government has especially taken steps to address the banking sector weakness, but that remains on the to-do list,” Kose told PTI.

“Second (to do list) of course is the initiative by the government to remove some of the public investments, exactly the right thing to do to stimulate – to try to reinvigorate -private investment, which has been weak,” the Bank official said in response to a question.

Source: http://indianexpress.com/article/business/banking-and-finance/world-bank-projects-7-2-growth-rate-for-india-in-2017-4689537/

FDI in services sector up 26% to $8.68 billion in FY17

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FDI inflows in the services sector rose by about 26% to $8.68 billion in 2016- 17 with the government taking steps to improve ease of doing business and attracting foreign investments.

The services sector, which includes banking, insurance, outsourcing, research and development, courier and technology testing, had received foreign direct investment (FDI) worth $6.89 billion in 2015-16, according to data of the Department of Industrial Policy and Promotion (DIPP).

The government has taken several measures such as fixing timeliness for approvals and streamlining procedures to improve ease of doing business in the country and attract foreign investments.

With FDI growth in key sectors like services and telecom, the overall foreign investment inflows in the country too increased by 9% to $43.5 billion last fiscal.

Increasing FDI inflows in the services sector assumes significance as it contributes over 60% to India’s gross domestic product. The sector accounts for about 18% of the total FDI India received between April 2000 and March 2017, followed by key sectors such as computer software & hardware, construction development and telecommunications.

To further boost FDI inflows in the sector, the government is considering relaxation of policy in areas like single brand retail, multi-brand retail, print media and construction. The government is also focusing on enhancing services exports. It is organizing global services exhibition besides the commerce and industry ministry is looking at relax norms in areas like higher education to attract foreign players.

Foreign investments are considered crucial for India, which needs around $1 trillion for overhauling its infrastructure sector such as ports, airports and highways to boost growth. A strong inflow of foreign investments helps improve the country’s balance of payments situation and strengthen the rupee value against other global currencies, especially the US dollar.

Source: http://www.livemint.com/Money/oqGqFei9Aeuk00ls8ZgXLI/FDI-in-services-sector-up-26-to-868-billion-in-FY17.html

Finnish companies looking for new opportunities in India

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Nina Vaskunlahti, Ambassador of Finland to India Paul Noronha

India is becoming one of the favorite destinations for investments in manufacturing, clean tech, infrastructure and hi-tech for Finnish companies.

Nina Vaskunlahti, Ambassador of Finland to India, in an interview with BusinessLine said, “There is increasing interest in economic cooperation, and Finnish companies are looking for new opportunities in India.”

Investment protection

According to Vaskunlahti, although India’s legislative framework can be a little complicated and the judicial system overworked and under-resourced leading to delays in solving disputes for foreign investors, overall the atmosphere is “welcoming and pretty open”.

However, according to the Ambassador, Finland is worried over India’s move to terminate investment protection agreement with 82 countries. “We are not quite sure what is the purpose of this,” Vaskunlahti said. While the treaty between India and Finland is still in force, according to Vaskunlahti, India and the European Union seem to be stuck over negotiating a new investment protection treaty after a year back India had sent request for renegotiation for the Bilateral Investment Treaty (BIT) to over 80 countries with whom it had earlier signed Bilateral Investment Promotion and Protection Agreements (BIPA).

“As a member of EU, we cannot negotiate on our own, because it’s the EU Commission that has a negotiating mandate,” Vaskunlahti said. “What we have now on the table is called a comprehensive negotiating mandate which covers both free trade agreement and the investment protection agreement. For the moment, nothing much is happening, but efforts and work are being done in background to push it forward.”

The new model of the BIT was cleared by the Union Cabinet in December 2015 and was seen to give more stability to foreign investors and prevent disputes with multinational companies by excluding matters such as government procurement, taxation, subsidies, compulsory licences and national security.

Arbitration mechanism

At the same time, the new model BIT brings in a provision obliging foreign investors to first exhaust the option of local judicial system at least for five years before going to international arbitration mechanism in case of disputes.

Some of the cases when foreign investors challenged India in international arbitrage, invoking clauses of earlier BIPAs include Devas Multimedia, Vodafone, Deutsche Telekom, Sistema and Cairn.

Source: http://www.thehindubusinessline.com/info-tech/finnish-companies-looking-for-new-opportunities-in-india/article9719905.ece

Modi, Putin agree to expand nuclear power plant, push defence ties

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India and Russia signed five pacts, including a crucial agreement on setting up two more atomic power plants at Kudankulam

India and Russia on Thursday reaffirmed their “special and privileged strategic partnership” and signed five pacts, including a crucial agreement on setting up two more atomic power plants at Kudankulam in Tamil Nadu, as Prime Minister Narendra Modi and President Vladimir Putin discussed ways to smoothen bilateral relations.

The pacts were signed in St Petersburg on the third leg of Modi’s four-nation, six-day tour of Europe. Modi is in St Petersburg for the 18th India-Russia annual summit as well as the St Petersburg International Economic Forum.

The two countries are also marking 70 years of the establishment of diplomatic relations between them this year.

“Met President Putin. We had a wonderful meeting during which we discussed India-Russia relations,” Modi wrote in a Twitter post after a one-to-one meeting with the Russian leader.

The highlight of the day was India and Russia concluding a much-awaited pact for setting up the last two units of the Kundankulam nuclear power plant with Moscow’s help. The general framework agreement (GFA) and credit protocol for units 5 and 6 of the Kudankulam nuclear plant was among the five pacts signed on Thursday.

The reactors will be built by Nuclear Power Corporation of India Ltd (NPCIL) and Russia’s JSC Atomstroyexport, a subsidiary of Rosatom, the regulatory body of the Russian nuclear complex. Each of the two units will have a capacity to produce 1,000 megawatt (MW)of power. One 1,000MW nuclear power plant in Kudankulam is operational while another 1,000MW capacity plant is expected to go on stream later this year. Two others of equal capacity are under construction. India’s current nuclear power generation capacity is about 7,000MW.

A joint statement noted that the economies of India and Russia complemented each other in the energy sector and both countries will strive to build an “energy bridge”. It said the future of Indian-Russian cooperation holds great promise across a wide spectrum covering nuclear power, nuclear fuel cycle and nuclear science and technology.

Traditionally, India and Russia have shared a close relationship that dates back to the days of the Cold War, when the US tilted toward India’s neighbour and arch rival Pakistan. Much of India’s military hardware is still of Russian origin though India has diversified its defence procurement with major purchases of military hardware from the US, Israel and France.

On its part, Russia has been concerned at the rapidly warming ties between India and the US including the recent signing of a military logistics agreement.

India’s concerns vis-à-vis its once “trusted strategic partner” include its present tilt towards China with which India has a difficult relationship mainly due to an unsettled border dispute and Beijing’s close ties with Pakistan. Last year, Russia held its first ever military exercises with Pakistan, raising concerns in India.

Once seen as on the same page vis-à-vis concerns on terrorism emanating from Pakistan and Afghanistan, currently there are divergences between New Delhi and Moscow on that issue as well with Russia favouring a role for the rebel Taliban in a future Afghanistan against the rise of the Islamic State in the war-torn country. That Russia did not back India’s demand to name two Pakistan-based terror groups as perpetrators of terrorism against India last year at the Goa Brics (Brazil-Russia-India-China-South Africa) summit did not go down well with India.

In an interview to PTI on Thursday, Putin tried to assuage some of India’s concerns. “Russia is respectful toward all Indian interests,” Putin said. “Russia does not have any tight military relations with Pakistan.”

Putin added: “No matter where terror threat comes from, it is unacceptable and Russia will always support India in fight against terror.”

“There is no other country in the world that Russia has “deep cooperation” in delicate areas such as missiles,” Putin said adding Russia’s “trust-based” ties with India will not be diluted by Moscow’s growing ties with Pakistan and others.

The statement also said that India and Russia were looking to expand trade from the current $ 7.7 billion level to $ 30 billion by 2025.

Source: http://www.livemint.com/Politics/sengcF8LFc2QxVWk75r4wK/Modi-visit-India-Russia-ink-pact-to-expand-Kudankulum-nucl.html