India signs 16 advance pricing pacts with MNCs

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The income tax department has signed 16 advance pricing agreements (APAs) with multinational companies (MNCs) so far, exempting their transactions with local units from rigorous tax audits.

APAs were introduced to give tax certainty to MNCs that agree on certain principles in the valuation of their cross-border transactions.

These companies are in the business of telecommunication, oil exploration, pharmaceuticals, finance, banking and software development.

India has also resolved 45 tax disputes with multinational companies, especially US-based IT and IT-enabled services firms, under provisions in a bilateral tax treaty for avoiding double taxation. Sources said the tax department is working on another set of disputes for resolution. The India-US treaty provides for tax authorities of both the countries to bilaterally apportion the income of MNCs from cross-border operations to be taxed in each country and avoid double taxation.

The scheme, called mutual agreement procedure (MAP), offers MNCs a quick dispute resolution mechanism.

Most of the large US-based software companies having contract research and development operations in India have faced tax disputes on how much of the local arms’ revenue from services to the offshore parent is taxable in India.

“We are working on signing as many as 50 APAs, including some bilateral ones and resolving about 100 tax disputes under MAP soon,” said a person privy to the development.

Corporate tax exemptions phase-out may end MAT

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The Minimum Alternate Tax (MAT) could be phased out after some years, if and when all corporate tax exemptions and deductions are phased out.

This could take at least seven or eight years. If it happens, experts agree, it would reduce tax litigation.

A finance ministry official said MAT might become redundant in seven years or more and could be removed. “For now, it will remain in the Income Tax Act, even if it does not affect people. If there are no substantial deductions that reduce the income to below 18.5 per cent, MAT will not be applicable. In seven to 10 years, as MAT becomes redundant, it will be removed,” he said.

MAT THROUGH THE YEARS
  • 1987-88: Rajiv Gandhi introduces Section 115J in I-T Act to tax zero tax companies at at least 15% of book profits
  • 1990-91: Madhu Dhandvate Abolishes it
  • 1996-97: P Chidambaram re-introduces section 115 JA. MAT rate at 12.5% of total book profit.
  • 2000-01: Yashwant Sinha amends and makes  it 115 JB. Rate at 7.5%. Continues even today. Simplifies rules
  • 2006-07: 7.5%, but long capital gains taken into account to compute book profit
  • 2009-10: 10%
  • 2010-11: 15%
  • 2011-12: 18%
  • 2012-13: 18.5%
  • 2013-14: 18.5%
  • 2014-15: 18.5%
  • 2015-16: 18.5%


The government is also looking at setting a sunset date for most open-ended tax concession schemes, alongside a five percentage point reduction in the corporate tax rate in four years. The rate is 30 per cent, but is close to 23 per cent, on account of a large number of exemptions and deductions. The revenue forgone in 2012-13 on account of deductions in this regard was Rs 68,000 crore.

In the next financial year, the corporate tax rate might be around 29 per cent, after a cut, part of a plan to align Indian taxation levels to global standards. “As the government progressively reduces the rate to 25 per cent and phases out exemptions and deductions, the need for MAT goes away. It will simplify a lot of things,” said Sudhir Kapadia, national tax leader, EY.

The finance ministry will issue a discussion paper on phasing out the exemptions and deductions. It is likely to announce the road map in the Budget.

MAT is levied at 18.5 per cent and was meant for large companies that showed book profits but took advantage of legal provisions to avoid paying corporate tax, via dividend payments and other legal deductions to stated income. As of now, 38 corporate tax deductions apply to industry, including benefits for units set up in Special Economic Zones (SEZs), the northeast states, hilly states and so on. Besides, tax incentives are offered for expenditure on scientific research, funding charitable trusts and institutions and the like. Deductions are also offered to sectors such as power, telecommunications, and infrastructure.

“As the corporate tax rate is reduced to 25 per cent, MAT will also not make sense, as the two rates anyway come close,” said  Rajesh H Gandhi, partner, Deloitte Haskin and Sells.

Rahul Garg, leader, direct taxes, PwC, said the government should look at replacing corporate tax with MAT. The effective corporate tax was 23.4 per cent, he explained, while that of MAT was close to 22 per cent. “If the government simply increases the MAT rate by one percentage point, collections will go up. With this, the government could get rid of all disputes,” he said.

SEZs lost sheen after then finance minister Pranab Mukherjee in 2011-12 imposed MAT on the book profits of these developers and units inside one.

That and a dividend distribution tax of 10 per cent made these  enclaves unattractive. Only 192 of the 388 notified SEZs are operational, meaning at least one functional export unit. There are 588 approved SEZs.

Exports from SEZs fell 7.6 per cent in 2014-15. The department of commerce has been pressing the finance ministry for the withdrawal of MAT but the latter has not obliged. The Budget for 2015-16 has  exempted foreign portfolio investment from MAT and the government has also accepted the A P Shah panel recommendation to do away with past cases of MAT on foreign institutional investors. A change to the law is on its way, while tax officials have been instructed not to pursue notices, issued against foreign instituional investors. However, applicability of MAT on foreign companies without permanent establishment remains. A case relating to this involving Castleton Investments is pending in the Supreme Court.

Govt may open educational, legal services to foreigners

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The government is planning to open its education and legal services to foreigners, a move aimed at boosting the country’s services sector.

In a country like India, “this (the liberalisation of the services sector) is to be slow and should have a calibrated approach …It is at a very early stage. A road map has been prepared,” Commerce Secretary Rita Teaotia told PTI.

Explaining the country’s approach to open education sector, the secretary said, in the beginning, opening online courses could be an option.

“Indira Gandhi National Open University is doing something. Some professional bodies are also offering online courses. So, when we have such reputed technical institutions, more online courses can make the training they offer accessible to other countries. So, this could be one step,” she said.

About opening legal services for foreign players, she said the Commerce Ministry’s intention is to work with Bar Council of India (BCI) to move in a direction which is “calibrated and always reciprocal”. The government is also in consultation with the Society for Indian Law Firms for this.

“…so the first step should be to look at our domestic sector and making an environment which allows for the growth of our legal services sector,” she said.

She said the road map developed by the Department of Commerce with stakeholders is to first permit “multi-professional firms to come in, and to allow them to increase size of the firms”.

“So, these could be early stage reforms. Once we do that, in the next stage we can have consultation with the BCI,” she added.

Opening up of these two sectors is under discussion of the Committee of Secretaries.

The UK and the US have been pushing India to open up the sector to foreign firms.

The Advocates Act, which is administered by the BCI, provides for foreign lawyers or law firms to visit India on a reciprocal basis for temporary periods to advise their clients on foreign law and diverse international legal issues.

Income Tax E-Filing Process – At a glance

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Steps for Income Tax E-Filing:

 

 

  1. Select appropriate type of Return Form – ITR and download appropriate Return Form from https://incometaxindiaefiling.gov.in/
  2. Fill your particulars of name, address. PAN Number, date of incorporation (date of birth, in case of individuals), sources of income and the amounts and other details in the ITR return offline and generate a XML file
  3. Register and create a user id/password. User id is always your PAN number.
  4. Login and click on relevant form on left panel and select “Submit Return”
  5. Browse to select XML file and click on “Upload” button
  6. On successful upload, acknowledgement details would be displayed. Click on “Print” to generate printout of acknowledgement/ITR-V Form.
  7. In case the return is digitally signed, on generation of “Acknowledgement” the Return Filing process gets completed. You may take a printout of the Acknowledgement for your records.
  8. Incase the return is not digitally signed, on successful uploading of e-Return, the ITR-V Form would be generated which needs to be printed by the tax payers. This is an acknowledgement cum verification form. The tax payer has to fill-up the verification part and verify the same.
  9. The e-verification can be done using Aadhar number or through online banking. A duly verified ITR-V form should be submitted with the local Income Tax Office within 15 days of filing electronically. This completes the Return filing process for non-digitally signed Returns.
  10. For any assistance in filing the paper copy of the return please contact the Public Relations Officer of the local Income Tax Office.

Ease of doing business: Minimum Capital requirement, etc scrapped.

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Companies Amendment Act, 2015 has brought in certain provisions making way for Ease of doing business in India.

The Cabinet, chaired by Prime Minister Narendra Modi, had approved the changes in various provisions of the new Companies Act, 2013, which came into force with effect from April 1, 2014.

 

Minimum Capital requirement scrapped.

In the previous system, every company has to give a declaration to the Registrar of Companies (RoC), stating its paid-up capital is not less than Rs 500,000 in the case of public companies and not less than Rs 100,000 in the case of private companies, before commencement of business and exercising borrowing powers. The minimum paid-up capital requirement compliance and getting the certificate of commencement of business based on the above have been a hindrance for many small businesses.

Now, the minimum paid-up capital criteria have been scrapped, as per the Companies Amendment Act, 2015. Thus, a company can be formed even for small paltry amount of Rs. 10,000 and go ahead with doing business. The need to get the business commencement certificate based on the above compliance, is also dispensed with as per the Companies Amendment Act, 2015.

Common Seal made optional

Another provision under the Companies Amendment Act, 2015, towards Ease of doing business in India, is making Common Seal optional.

As a consequence, changes have been made with regards to authorization for execution of documents [Sections 9, 12, 22, 46 and 223], which made execution of documents, in the past, with  signatures of 2 directors under a Common Seal.

Incorporation of Companies under Companies Act, 2013

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Steps for Incorporation of company under Companies Act, 2013

 

  1. Obtaining Digital Signature Certificate

For the Directors of the company, we have to obtain the Digital Signature Certificate (DSC).

For the DSC, the following documents are required:

  • For Indian Nationals: PAN Card (mandatory) and Voter’s identity card or Passport copy or Driving License copy
  • For Foreign nationals and Non Resident Indians: Passport Residential proof such as Bank Statement, Electricity Bill, Telephone / Mobile Bill; Provided that Bank statement Electricity bill, Telephone or Mobile bill shall not be more than two months old. Foreign director’s specimen signature and latest photograph duly verified by the banker or notary.
  1. Obtaining Director Identification No. (DIN)

Application in Form DIR-3 is to be e-filed for getting the Director Identification Number for all the proposed directors.

  1. Application for Reservation of Name

Application in Form INC -1 to be e-filed for the proposed company, giving 5-6 options of the main name with combination of coined words. The same shall be reserved for a period of 60 days.

  1. Drafting of Memorandum of Association

The main lines of business to be pursued on formation of the company to be mentioned. The secondary or incidental objects also to be furnished.

  1. Drafting of Articles of Association

The bye-laws of the company to be drafted as Articles of Association in line with the provisions of the Companies Act, 2013.

  1. Filing Incorporation Form

The e-filing of Form No. INC.7 to be made alongwith,

(a) The Memorandum and Articles of the company duly signed by all subscribers;

(b)   A declaration in Form No.INC.8 by an advocate or Practicing professional (CA, CS, CA) who is engaged in incorporation, and a person named as Director, Manager or Secretary, that all requirements related to incorporation has been complied with;

(c)   An affidavit in Form No. INC.9 from each subscriber and from each person named as first director in the articles that, he is not convicted of any offence in connection with promotion, formation or management of any company, he is not been found guilty of any fraud or misfeasance or of any breach of duty to any company during preceding five years, and all the documents filed with the Registrar contain correct, complete and true information to the best of his knowledge and belief;

(d)  The address for correspondence till its registered office is established;

(e)  The particulars of every subscribers along with proof of identity;

(f)   The Particulars of first directors along with proof of identity; and

(g)  The particulars of interests of first directors in other firms or bodies corporate along with their consent to act as directors.

 

  1. Registered Office to be established

A company shall have a registered office within 15 days of Incorporation and it shall file Form No.INC.22 to verify the same.

Thus all the documents can be filed on-line to incorporate the company.

As initiative of ease of doing business, incorporation can be done through e-filing of single integrated Form 29, as well.

Ease of doing business: No need for certificate of commencement of business for companies

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Ease of doing business:

No certificate of commencement of business required for companies

The government has done away with this requirement, taking another step to ease doing business in India.

The Cabinet, chaired by Prime Minister Narendra Modi, had approved the 14 changes in various provisions of the new Companies Act, 2013 under the Companies (Amendment) Act, 2015.

One of the changes brought with reference to Commencement of Business Certificate is as below:

SECTION EARLIER PROVISION

 PROVISIONS AFTER AMENDMENT

11

 Commencement of Business. No requirement of Commencement of Business Certificate. Section 11 shall be omitted.

 

Many promoters have been asking for the clarification as, earlier companies having share capital shall not commence any business or exercise any borrowing powers unless –

Declaration shall be filed in Form No INC 21 by a Director and the content of the form shall be verified by Practising Professional (CS/CA/CWA) stating that every subscriber has paid the value of shares agreed to be taken and paid up capital is not less than statutory limit;

and

Following documents needs to be attached with the Form No INC 22

  • Registered document of the title in name of Company; or
  • Notarised copy of Lease/rent agreement along with rent paid receipt (Rent receipt shall not be older than 1 month); or
  • Authorisation from Owner to Company along with proof of ownership for use of premises as Registered Office (NOC can be submitted for this); and

Proof of evidence of any utility service like gas, electricity, telephone etc. in the name of owner (not older than 2 months)

The Cabinet, chaired by Prime Minister Narendra Modi, has made the meaningful change in various provisions of the new Companies Act, 2013, which came into force with effect from April 1, 2014, inter-alia, about the Commencement of Business Certificate and now, the government has done away with this requirement, taking another step to ease doing business in India.