Singapore pips Mauritius as India’s top FDI source

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Singapore has replaced Mauritius as the top source of foreign direct investment (FDI) into India during the first half of the current financial year.

During April-September 2015, India has attracted $6.69 billion (Rs 43,096 crore) FDI from Singapore while from Mauritius, it received $3.66 billion (Rs 23,490 crore), according to data from the Department of Industrial Policy and Promotion (DIPP).

Foreign investment from Singapore was $2.41 billion in the year-ago period.

According to experts, the Double Taxation Avoidance Agreement (DTAA) with Singapore incorporates Limit-of-Benefit (LoB) clause, which has provided comfort to foreign investors based there to invest in India.

“Investors are preferring Singapore to Mauritius as the LoB clause in India-Singapore treaty provides substance and certainty,” said Krishan Malhotra, head of tax and an expert on FDI with corporate law firm Shardul Amarchand and Mangaldas.

FDI from Singapore during the first six months of the current financial year is also more than what it had invested in India for the whole of 2013-14 ($5.98 billion). India had attracted $6.74 billion foreign investment during 2014-15.

Overall, Singapore accounts for 15 per cent of the total FDI India received between April 2000 and September 2015. However, Mauritius makes up 34 per cent of FDI during the same period.

Sectors that attracted the highest foreign investment during April-September 2015 include computer software and hardware ($3.05 billion), trading ($2.30 billion), services and automobile ($1.46 billion each) and telecommunications ($659 million).

Foreign investment is crucial for India, which needs about $1 trillion by March 2017 to overhaul infrastructure such as ports, airports and highways, and to boost growth.

Source: http://www.business-standard.com/article/economy-policy/singapore-pips-mauritius-as-india-s-top-fdi-source-115120700040_1.html

CBDT defines ‘charitable purpose’ for benefits under I-T Act

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CBDTTax department says any general public service that involves trade, commerce or business for a consideration will not be treated as Charity under the Act

With a view to weed out commercial activities under the garb of charity, the tax department has said any general public service that involves trade, commerce or business for a consideration will not be treated as Charity under the Income Tax Act.

Issuing ‘Explanatory Notes to the Provisions of the Finance Act, 2015’, which lists all the amendments that were made to it, the Central Board of Direct Taxes (CBDT) in a circular gave the definition of ‘charitable purpose’ as also listing yoga as one of the activities that will get tax benefit.

“The definition of ‘charitable purpose’ in the I-T Act has been amended to provide that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration..,” the note said.

This is intended to ensure appropriate balance between the object of preventing business activity in the garb of charity and at the same time protecting the activities undertaken by the genuine organisation as part of actual carrying out of the primary purpose of the trust or institution. “These amendments take effect from April 1, 2016, and will, accordingly, apply in relation to the assessment year 2016-17 and subsequent assessment years,” it said.

The explanatory note also provides details of rates of direct taxes, applicability of minimum alternate tax (MAT) on foreign entities, tax benefits for Swachh Bharat Kosh and Clean Ganga Fund, besides other provisions of the Finance Act, 2015, which was approved by Parliament in May.

As per the circular, 115 JB of Income Tax Act has been amended such that capital gains arising on transactions in securities; or interest, royalty or fees for technical services to a foreign company will not be liable to MAT if such income is credited to the profit and loss account and the tax payable is less than the rate specified in section 115JB.

Source: http://www.livemint.com/Companies/EWp1WVBQjO1ByPFsDuN6hN/CBDT-defines-charitable-purpose-for-benefits-under-IT-Act.html

India signs 11 more APAs to reduce tax disputes

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The Central Board of Direct Taxes (CBDT) has signed 11 more advance pricing agreements (APAs) with MNCs on Tuesday, taking the total number of such deals that would spare them from rigorous tax audits under certain conditions to 31 so far. Of this, 22 were signed this year. The department had earlier set an internal target of about 150 APAs for this year, mostly with US-based companies in the IT and ITeS sector to avoid future tax disputes. So far, it has covered about a fifth of this target. Experts expect that clearing all APA requests, applying their terms to similar past transactions and resolving disputes with foreign tax authorities under the Mutual Agreement Procedure would clear most of the accumulated cross-border tax disputes amounting to Rs 2.7 lakh crore. Till now about 45 tax disputes are resolved under the MAP procedure.

APA is an agreement between the tax authority and companies on the principles of valuation of certain transactions, which if adhered to will exempt the company from tax audits on cross-border deals. The tax disputes which the government may have with the companies on similar transactions in previous years too would be resolved by applying similar agreed upon value to past transactions. The move is part of the government’s efforts to reduce tax litigation.

According to sources, most of the APAs signed on Tuesday relate to service provider companies in the investment advisory and ITeS sectors. “The effort of the APA authorities is impressive. A lot of hard work has gone into analysing these cases and getting them to a closure,” said Vijay Iyer, Partner & National Leader for Transfer Pricing, EY which was involved in five of the 11 pacts on Tuesday.

While an APA between a company and the tax department will resolve a dispute in India, the possibility of double taxation would be fully addressed only when the tax authority in the company’s home country too becomes party to such agreement. America, which is home to many technology firms facing tax disputes in India, has recently started steps to implement such ‘bilateral APAs.’

Source: http://www.financialexpress.com/article/economy/india-signs-11-more-apas-to-reduce-tax-disputes/170136/

Income tax mop-up from Mumbai rises 20% to Rs 1.14 trillion

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Income TaxIncome tax collection from the Mumbai region has gone up by over 20 per cent as of November 21 over the year-ago period.
The region, which mops up more than one-third of the total direct tax, has collected Rs. 1.14 trillion (Rs 1,14,000 crore) as of November 21, up from Rs. 0.95 trillion in the year-ago period, showing a growth by 20.17 per cent, Principal Chief Commissioner of Income Tax and Head of Mumbai region DS Saksena told PTI.
The department is hopeful of achieving its projected collection of Rs. 2.56 trillion for the fiscal by March from Mumbai region alone, he added.

Against this, indirect taxes have been doing much better with the collection till September rising over 35.8 per cent to over Rs. 3.24 trillion in the first half of the current fiscal, reflecting growth in economic activity against Rs. 2.38 trillion.
Saksena said while advance tax collection from the region rose only 6.47 per cent to Rs. 58,000 crore during the period, up from Rs. 54,761 crore a year ago, TDS collections rose 10 per cent to Rs. 53,062 crore from Rs. 48,223 crore.
Saksena attributed the rise in collections to the uptick in the performance of industries and “given the trend so far, we are quite hopeful of achieving the target of Rs. 2.56 trillion.”

For the entire country, which comprises 17 regions, income tax collections as on November 21 stood at Rs. 3.63 trillion against a budget estimate of Rs. 7.97 trillion for the full year.
Nationally advance tax mop up rose to Rs. 1.42 trillion from Rs. 1.34 trillion in the year-ago period and thus showing a growth of 6.5 per cent.
Similarly, TDS amounting to Rs. 1.95 trillion was collected from the entire country during the period, showing a growth by 11.33 per cent over the year-ago period’s collections at Rs. 1.75 trillion.

The growth rate in collection during the first half of 2015—16 is double the budget requirement of 18.8 per cent for the full fiscal.
Bulk of the growth in the indirect taxes has been contributed by excise duty collection, which grew 69.6 per cent during the period. Excise collection during April—September over Rs. 1.25 trillion, as against Rs. 74,019 crore in the same period last fiscal, while Customs mop up grew 17.5 per cent to over Rs. 1.03 trillion during the six months and service tax grew 24.3 per cent to Rs. 95,493 crore.

The government has budgeted to collect over Rs. 6.47 trillion from indirect taxes in the current fiscal, a growth of 18.8 per cent over last fiscal.

Source: http://www.thehindubusinessline.com/news/income-tax-mopup-from-mumbai-rises-20-to-rs-114-trillion/article7912856.ece

Govt to further simplify ITR forms, sets up committee

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The government is looking to further simplify income tax return forms to help taxpayers fill them without seeking help from experts and the revenue department has set up a committee in this regard.

The committee, according to sources, will be headed by a joint secretary level officer and would include chartered accountants and tax experts.

“The tax department is trying to further simplify the return form so that no outside help is needed by those who want to file returns on their own,” a source said.

The effort would be to come out with a simple formula for indexation to help assessees compute capital gains on sale of assets, the source added.

“The Committee would also look into the possibility of reducing the number of pages in the return form,” the source said.

The Income Tax department had in June come out with a simplified tax return form for salaried class. Filers now have to disclose the total number of savings and the current bank accounts held by them at any time during the previous year (excluding dormant accounts).

The form also has space to fill up the IFSC code of the bank and in an additional feature, tax filers have been given an option to indicate their bank accounts in which they would want their refund credited. The ITR also has sought the Aadhaar number of filers.

The tax department had come out with simplified ITR after experts raised objections to the 14 page form which was notified earlier in the year.

The earlier form sought details of bank accounts and foreign visits and following controversy, the Revenue Department announced putting them on hold.

Source: http://www.business-standard.com/article/pti-stories/govt-to-further-simplify-itr-forms-sets-up-committee-115112200147_1.html

Finance Ministry to ease transfer pricing rules

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The finance ministry is streamlining safe harbour rules and advance agreements, two mechanisms to determine the price of services rendered by a multinational to its subsidiary in India.

Safe harbour rules – directives on margins the tax authorities should accept for the transfer price declared by an assessee – have drawn a tepid response since they were introduced a couple of years ago. There is also a huge backlog in advance pricing agreements (APAs), an ahead-of-time understanding between a taxpayer and the tax authority on an appropriate transfer pricing methodology.

ALIGNING INDIAN TAXATION WITH BEST PRACTICES
Safe harbour rules

  • Government looking at lowering safe harbour margins to make it attractive for companies to opt for it
  • Government to make safe harbour definition unambiguous bringing in more clarity

Advance Pricing Agreement

  • With close to 550 cases pending, government looking at expediting clearances through:
  • Sector-specific approach to cases
  • Increasing manpower and filling up vacancies

The move would simplify the tax regime, reduce litigation and help improve the business environment, a finance ministry official said.

The steps will involve lowering the margins in safe harbour rules and definitions will be reworked to remove ambiguities. India announced the safe harbour rules in 2013, but the high margins of up to 25 per cent on total operational profits have made it unattractive for companies to use them.

“We are addressing issues related to transfer pricing to align it with best practices. We are revising the safe harbour rules that will include revisiting the definition and revising the margins, considered high by companies,” said a tax official.

Information technology (IT) and information technology-enabled services (ITeS) companies with transactions of up to Rs 500 crore have a safe harbour operating margin of 20 per cent and those with transactions above Rs 500 crore have a margin of 22 per cent. Knowledge process outsourcing companies have a safe harbour operating margin of 25 per cent.

Experts argue there is ambiguity in the definition of IT, ITeS and knowledge process outsourcing companies with a lot of overlap. Moreover, the margins decided in tribunals or in advance pricing agreements turn out much lower, ranging between 15 and 18 per cent.

“The definitions under the safe harbour rules are fuzzy and sometimes overlap, creating confusion over what rate should apply and which company will fall under which sector. We are expecting clarity on the definition,” said Rahul Garg, leader, direct tax, PwC.

Manisha Gupta, partner, Deloitte Haskins & Sells, said the safe harbour margins were high. “The government agrees to far lower rates at tribunals and in advance pricing agreements,” she said.

The lowering of safe harbour rates will ease the advance pricing agreement backlog. The government introduced the advance pricing scheme in 2012 and there are over 500 applications pending.

“We are considering sector-wise handling of cases by officers to expedite decisions,” the tax official said. “We have already made a request for an increase in manpower to clear the backlog. We expect a decision soon,” he added.

India has the highest incidence of transfer pricing litigation worldwide. The number of cases scrutinised has quadrupled from 1,061 in 2005-06 to 4,290 in 2014-15.

Among measures recently introduced, the government said an officer would be assigned not more than 50 important and complex transfer pricing cases. Officers typically audit more than 70 cases at a time.

Besides, the tax department has incorporated range and multi-year data in transfer pricing calculations to bring Indian laws in line with international practices. Earlier, single-year data and the arithmetic mean were used to arrive at transfer pricing.

Earlier this year, the finance ministry allowed rollback advance pricing agreements so that multinational companies could settle taxes for previous years as well.

“The burden on tribunals, high courts, Supreme Court and even on the APA team can be substantially reduced if the Indian government revamps the safe harbour rules (that is, devising calibrated and more reasonable margins for the sector consistent with the margins finally arrived at post-tribunal orders/MAP/APA and providing clarifications on what constitutes software development activities, KPO, contract R&D,” said a Deloitte & Taxsutra report on transfer pricing.

Approximately over 40 per cent of APA applications are from the IT/ITeS sector. Up to September 2015, more than 575 APA applications have been filed with the APA authorities. Fourteen of these APAs have been concluded, of which 12 are unilateral and two bilateral (with Japan and the UK).

Source:Business Standard

Global Financial Secrecy Index: Hong Kong, Singapore’s ranks rise

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Hong Kong and Singapore have increased their ranking for financial secrecy, with the Chinese territory rising to number two, behind only Switzerland in a 2015 index of the world’s offshore havens, compiled by the Tax Justice Network (TJN).

Both the Asian financial hubs have made insufficient reforms to their corporate secrecy regimes, according to the London-based TJN, which campaigns for greater transparency in finance. Singapore’s ranking moved to fourth from the fifth place it held in the organisation’s previous index in 2013, when Hong Kong placed third.

“Singapore, in fourth place, poses many of the same threats that Hong Kong does: a lack of serious reforms to its corporate secrecy regime; a lack of interest in creating country-by- country reporting or in creating public registries of beneficial ownership,” the TJN said.

The two cities each account for about 4 per cent of the global market for offshore financial services, the organisation said. The hubs are well exposed to offshore flows because of rising assets under management and their status as regional financial hubs, according to the TJN.

“We do not have laws protecting bank secrecy and so we have never attracted foreign capital by such means,” a spokesman for Hong Kong’s Financial Services and the Treasury Bureau said in an e-mailed response to the TJN survey. “Hong Kong has all along been highly supportive of international efforts to enhance tax transparency and combat tax evasion,” the spokesman added.

The US was ranked third for its refusal to take part in a global system for exchanging bank data created by the Organisation for Economic Cooperation and Development.

Source: http://www.business-standard.com/article/economy-policy/global-financial-secrecy-index-hong-kong-singapore-s-ranks-rise-115110301720_1.html