After PM Modi Order, Enforcement Directorate’s crackdown on Shell Companies begins across 100 cities

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Enforcement Directorate is carrying out searches at 100 locations to detect shell companies.

Weeks after the Prime Minister Narendra Modi’s office ordered a crackdown on shell companies used to launder money, the Enforcement Directorate on Saturday carried out nationwide searches across 100 locations targeting nearly 300 shell companies.

Sources said Saturday’s ED raids on shell firms across more than a dozen states was a direct fallout of the coordinated action against these firms. Among the cities where the Enforcement Directorate teams were conducting raids are Kolkata, Chennai, Delhi, Ahmedabad, Chandigarh, Patna and Bengaluru. In Chennai, officials said searches were being carried out at 13 locations linked to 8 companies.

The PMO had last month identified paper companies, which do not conduct any operations but are used to launder money and evade taxes by other firms, as a big challenge to PM Modi’s war against black money.

As part of this exercise, the government had also decided to create a database of shell companies and their directors. A task force chaired jointly by the Revenue Secretary and Corporate Affairs Secretary was mandated to coordinate action against these dubious companies.

That the 1,155 shell companies detected over the last three years had been used as conduits by over 22,000 beneficiaries to launder money, one government official said, indicated how important it was to target shell companies. These companies face charges of dubious transactions running into more than Rs. 13,300 crore.

It is not clear if today’s multiple ED raids on shell firms are linked to the government’s finding that over 550 people had laundered Rs. 3,900 crore through such companies after the November 8 ban on the high-denomination notes.

An official report had earlier pointed that only 6 lakh of the 15 lakh registered companies file annual return. While it was possible that many of them may be defunct, officials said it could be possible that some of these could be involved in dubious transactions.

The Special Investigation Team to fight Black Money set up on the Supreme Court’s directions had also pointed that proactive detection of shell companies was going to be a key to the success of the government’s campaign.

Source: http://www.ndtv.com/india-news/after-pm-order-crackdown-on-shell-companies-begins-across-100-cities-1676030

Fresh transfer pricing trouble for MNCs

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A new provision for secondary adjustment in transfer pricing, announced in the Union Budget for 2017-18, is likely to affect the cash flow of multinational corporations (MNCs) and the dividend distribution tax paid by their Indian subsidiaries. The provision has also sparked worry on Minimum Alternate Tax (MAT) and service tax payable by the subsidiaries, as well as retrospective implementation from 2013-14.   Experts claim the provision is in line with the norms of the Organisation for Economic Co-operation and Development (OECD) —but its wording is giving rise to apprehension.

Transfer pricing is the value at which companies trade products, services or assets between units across borders, a regular part of doing business for a multinational.

A primary adjustment is made, by tax administration, to company´s taxable profits on transactions with an associated enterprise in a secondary jurisdiction.

At present, there is only primary adjustment on transfer pricing of an MNC´s subsidiary.

This means if the subsidiary concerned agrees to the tax adjustment provided by an assessment officer, or on its own makes such an adjustment, it will pay taxes on that amount.

For instance, a company claims it has earned Rs.400 crore, and the transfer pricing officer claims it has earned Rs.600 crore, using the arm´s length principle.

If the company agrees to the assessment and pays tax on this, it is called primary adjustment.

Under the existing law, the additional Rs.200 crore would not need to be shown in the books of the company.

A secondary adjustment arises when simultaneous changes are made in the books of accounts of the company as well. This is what new provision aims at —the additional Rs.200 crore would also have to be shown in the books of the Indian subsidiary of MNC concerned.

“The parent company might not want to part with this Rs.200 crore, as the subsidiary in India might not be significant for its strategy,” said Eric Mehta, partner, transfer pricing, PwC India.

“An MNC might have a global presence, with India only a small part of its affairs.” Sending the money to India would also face hurdles because of lack of a contractual arrangement, said Amit Maheshwari, partner, Ashok Maheshwary and Associates.

He added it would have an adverse effect on the cash flow and business operations of MNCs.

If the Indian subsidiary concerned does not get the required amount, say Rs.200 crore, within a stipulated period, it would be considered a loan to the parent or associate, attracting interest.

(The time period has not been specified in the Budget documents.) “In case, the total amount is brought to the books of the Indian company, it will give rise to higher dividend, which in turn, will give rise to higher dividend distribution tax,” said Mehta.

Also, if the payment is towards services rendered by Indian subsidiaries, the higher receipt in books will give rise to higher service tax liability, added Mehta.

Maheshwari said higher receipt and hence profit in the books would also give rise to MAT as profit on the additional income, in this case  Rs.200 crore, was not shown earlier in the books earlier.

It should be noted that MAT is applicable to book profits.

All this will, however, only apply if the primary adjustment of the Indian entity exceeds Rs.1 crore the previous year —along with other conditions.

The provision has also given rise to fear of retrospective application, as the condition of primary adjustment exceeding Rs.1 crore is effective from April 1, 2016 or previous years.

Currently, the assessment of 2013-14 is underway for transfer pricing purposes, said Mehta, pointing to the possibility of secondary adjustments made from that year.

He agreed the purpose of the provision might not be to have retrospective effect, but the wording does not prevent it.

I-T refunds rise by a whopping 41.5%, government issues 1.62 cr refunds worth Rs 1.42 lakh cr

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The income tax department has issued refunds to the tune of Rs 1.42 lakh crore so far this fiscal till February 10, 41.5 per cent higher than last year’s.

The income tax department has issued refunds to the tune of Rs 1.42 lakh crore so far this fiscal till February 10, 41.5 per cent higher than last year’s. The Centralised Processing Centre (CPC) of the tax department has already processed over 4.19 crore income tax returns (ITRs) and issued over 1.62 crore refunds during the current financial year up to February 10, 2017.

“The amount of refunds issued at Rs 1.42 lakh crore is 41.5 per cent higher than the corresponding period last year,” an official statement said. As much as 92 per cent of the refunds issued are below Rs 50,000 due to the high priority given to expeditious issue of refunds to small taxpayers.

Only 2 per cent of refunds less than Rs 50,000 remain to be issued. A majority of these cases relate to recently-filed ITRs or where the taxpayer’s response to the department is awaited.

The department also advised taxpayers to verify and update their e-mail address and mobile number on the e-filing portal to receive electronic communication.

“CBDT is committed to ensuring best possible taxpayer services through its e-governance programmes and increasing the coverage and scope of electronic filing and processing of various forms and applications,” the statement said.

As a result of emphasis on expeditious issue of refunds, 92 per cent of all I-T returns were processed within 60 days, demonstrating the Central Board of Direct Taxes’ (CBDT) commitment to faster and more efficient taxpayer service.

As many as 4.01 crore ITRs were e-filed till February 10, 2017, an increase of 20 per cent over the previous year.

Also, more than 60 lakh other online forms were filed with an increase of nearly 41 per cent compared with the previous year.

In April-January, the total direct tax collection grew 10.79 per cent to Rs 5.82 lakh crore led by robust collections in personal income tax.

Delay in filing Income Tax returns will now attract fine up to Rs 10,000

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The Budget has proposed imposing a fine for not filing income tax returns within the due date. For income below Rs.5 lakh, filing returns after July will attract a fine of R1,000, while for income above Rs. 5 lakh it will be R5,000, if it is filed after the due date but on or before December 31 of the assessment year. It has also proposed a fee of R10,000 in any other case.

Since it is a fee, it has to be paid while filing tax returns along with any tax on any income and interest. “It is proposed to make consequential amendment in Section 140A to include that in case of delay in furnishing of return of income, along with the tax and interest payable, fee for delay in furnishing of return of income shall also be payable,” the Finance Bill 2017 underlines.

At a post-Budget event organised by the Institute of Chartered Accountants of India, Hasmukh Adhia, revenue secretary said that those who have an income of Rs. 5 lakh and above and file returns after July but till December will face a fine of R5,000. “This fine will be raised to R10,000 if the return is filled after December,” he said.

Time limit for filing revised return reduced

Under Section 139(5) of the Income Tax Act, an assessee can file revised return within two years from the end of the relevant fiscal year or before the completion of assessment by tax authorities, whichever is earlier. The Finance Bill proposes to reduce the time limit for filing such revised return to one year from the end of relevant fiscal year or before the completion of the assessment by tax authorities, whichever is earlier. This amendment shall be effective from fiscal year 2017-18.

A revised return can be filed if the assessee has filed the return within the due date. For filing the revised return, one has to enter the acknowledgement number and the date of filing of the original return in the revised form.

The Budget has also proposed to reduce the time limit for completion of assessment under Section 153 of the I-T Act. In assessment year 2018-19, it will be 18 months from the end of the assessment year. From assessment year 2019-20, it will be 12 months from the end of the assessment year. It has also reduced the time limit for completion of re-assessment. In respect of notices served under Section 148 of the I-T Act on or after April 1, 2019, the time limit for completion of assessment or re-assessment will be 12 months from the end of the financial year in which the notice is served.

Interest on refund

Under Section 244(A) of the I-T Act, an assessee is entitled to receive interest on refund because of excess payment of advance tax, tax deducted or collected at source. The assessee will, in addition to the refund amount, will receive simple interest on such refund at the rate of 1.5% for every month or part of a month from the date on which claim for refund is made in the returns or in case of an order passed in appeal, from the date on which the tax is paid to the date on which refund is granted.

The govt has revised 40 tax treaties for information

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India has revised 40 treaties for avoidance of double taxation so that the information exchanged with partner nations on tax matters can also be utilised for other purposes including criminal proceedings, Parliament was informed today.

“Treaty partner countries have been requested to modify the tax treaties, so as to explicitly include provisions that will enable information exchanged for tax purposes to be utilised for other purposes, including criminal proceedings in non-tax matters,” Minister of State for Finance Santosh Kumar Gangwar said in a written reply to Rajya Sabha.

“40 treaties for avoidance of double taxation have been revised accordingly,” he said.

In addition, Gangwar said, India has signed “the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, which also similarly facilitates exchange of information”.

These developments enable use of such information by non-tax agencies, subject to agreement by the Competent Authorities of the Requested Contracting State, he said.

Replying to a separate question, Gangwar said the Enforcement Directorate has provisionally attached assets of worth Rs 9,298 crore in 2016.

The minister said that as per estimate over 2,000 tonnes of gold is held by household, trusts and various institutions in India.

Source: http://www.freepressjournal.in//the-govt-has-revised-40-tax-treaties-for-information/1012899

All I-T returns must be filed by March-end of assessment year

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If the income exceeds Rs 5 lakh, a fee of Rs 5,000 shall be payable

With a view to expedite tax assessments, the income tax department proposes to make it mandatory for tax payers to file I-T returns as well as revised returns by March end of the assessment year (AY).

The department, in the memorandum to Finance Bill 2017, has also proposed a fee for delayed filing of income tax returns. In case of people whose total income does not exceed Rs 5 lakh, Rs 1,000 fee would be charged.

If the income exceeds Rs 5 lakh, a fee of Rs 5,000 shall be payable, if the return is filed after July but on or before December 31 of the Assessment Year (AY). A fee of Rs 10,000 shall be payable if ITR is filed after December.

“In order to expedite assessments of the Department, it is critical that the returns for an assessment year also freeze by the end of the assessment year. It is hence proposed to amend the provisions of sub-section (5) of section 139 to provide that the time for the furnishing of revised return shall be available up to the end of the relevant assessment year or before the completion of the assessment, whichever is earlier,” said the memorandum to the Finance Bill 2017.

This effectively means that people filing Income Tax returns have to file it with the department by March end of the assessment year i.E return for fiscal 2017-18 has to be filed by March 2019.

CBDT Chairperson Sushil Chandra said: “Today we have 1 crore people below Rs 2.5 lakh income filing tax returns. So if they are filing ITR, we want them to file returns on time. So now timely filing of ITR is mandatory.”

So far assesses were permitted to file delayed income tax returns one year after the completion of the assessment year.

Source: http://www.business-standard.com/article/economy-policy/all-i-t-returns-must-be-filed-by-march-end-of-assessment-year-117020201119_1.html

Tax avoidance rules: POEM norms to take effect from April, 2017

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Confirming that India’s so-called POEM regulations — which are meant to ascertain the residential status of companies and use it to curb tax avoidance — will take effect from April 1, the Central Board of Direct Taxes (CBDT) on Tuesday issued the final guidelines in this regard. While the draft Place of Effective Management rules issued in December 2015 had caused a stir in the industry for being out of sync with transnational business realities (under pressure from businesses, Budget FY17 deferred POEM activation by one year), the new draft narrowed the scope of the tool and sought to allay most concerns of the investor community about its potential improper use/misuse.

The CBDT has made it clear that POEM’s intent is  not to target Indian multinationals, which have legitimate business activities outside India, but to pin down shell companies  and firms created for retaining income outside India although the real control is exercised from India.

In what would reduce the chances of an assessing officer invoking the POEM provision without proper evaluation, the new rules state that she will need approval of a three-member collegium of her senior officers for triggering the test. Also, it has now been clarified that POEM guidelines won’t apply to companies having turnover or gross receipts of Rs 50 crore or less in a financial year. The regulations, the CBDT said, would apply for assessment year 2017-18 (FY17) and further.

“The guiding principles issued by the CBDT seeks to address some of the practical issues which could arise in application of the POEM test. The guideline strikes the right balance between providing certainty to taxpayers as well as ensuring that offshore companies with no substance or activities, which are controlled from India, are subject to Indian tax jurisdiction,” Rajendra Nayak, tax partner, EY India, said.

The POEM principle — which has found traction with tax authorities in capital-exporting countries and the OECD — was included in India’s I-T Act via the Finance Act, 2015 with the express purpose of discouraging the creation of shell companies with Indian shareholders in foreign jurisdictions to avoid tax residency in India. If a company is treated as resident in India, its worldwide income is taxable here, while only the India-sourced income of foreign companies is taxed. Although the tax rate on foreign companies is higher (40% versus the marginal rate of 30% for domestic firms), subjecting worldwide income to taxation could potentially increase the tax liability of many MNCs with Indian stakeholders. In fact, the real reason behind POEM is the tax department’s intent to curb corporate structures allowing passive foreign income — royalty, dividend, capital gains, interest income and the like — of firms incorporated in foreign countries with Indian ownership, escaping the tax net here. Tuesday’s draft, analysts said, gives further guidance on “active business outside India” test especially with respect to determination of passive income, total asset base, number of employees and payroll expenses in India and outside.

The new norms provide that if board of directors delegates authority to make key management decision/commercial decision to the promoter or strategic/legal/ financial advisors, the place of effective management will be the place where such persons makes those decisions.

Rakesh Bhargava, director, Taxmann, said: “In the final guidelines the CBDT has provided adequate safeguards to ensure that POEM guidelines does not become an oppressive tool in the hands of revenue to harass genuine assessees. Now, assessing officer can ascertain the residential status of foreign company on the basis of POEM guidelines only after taking two-stage approval; first approval is required before initiating any proceedings and second approval is needed before giving any final finding on residential status of foreign company.”

Giving additional clarifications, the CBDT said the decisions made by shareholder on matters which are reserved for shareholder decision under the company laws are not relevant for determination of a company’s POEM. However, the circular added, the shareholder’s involvement can, in certain situations, turn into that of effective management. “Therefore, whether the shareholder involvement is crossing the line into that of effective management is one of fact and has to be determined on case-to-case basis only,” the circular said.

Furthermore, the guidelines stressed that day-to-day decisions taken by junior or middle management of a company wouldn’t be taken into account for determining POEM. However, in certain situations where the person responsible for operational decision is also the one responsible for the key management and commercial decisions, it will be necessary to distinguish the two type of decisions and assess the location where the key management and commercial decisions are taken.

Source: http://www.financialexpress.com/economy/tax-avoidance-rules-poem-norms-to-take-effect-from-april-2017/521170/