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Blba global mobility seminar

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    Blba   global mobility seminar Blba global mobility seminar Presentation Transcript

    • Global Mobility:Issues and Challenges21 March 2013
    • Agenda for discussion 1. Individual Tax Aspects 2. Social Security Aspects 3. Corporate Tax Aspects
    • Issues for consideration Corporate Tax, Transfer Pricing, Permanent Establishment (PE) issues Social security arrangements Secondment Arrangements Employee Taxation Indirect Tax Implications Withholding Tax obligation on reimbursement / salary cost
    • Individual taxaspects
    • Contents  Scope of Taxation  Taxability of Employment Income  Compliance Requirements  Relief from Double Taxation  Caution Points  Work permit / Visa requirements  Social Security Provisions  Q&A© 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent memberfirms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 4
    • Scope of Taxation Residential Status under domestic tax law: • Resident and Ordinarily Resident; Worldwide income • Non Resident / Not Ordinarily Resident; Income sourced / received in India Physical stay in India in relevant tax year (01 April to 31 March) / ten previous tax years Highest tax rate – 30 percent over income > INR 1 Million; progressive tax slabs Additional Surcharge @ 10 percent over income > INR 10 Million; only for tax year 2013-14© 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent memberfirms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 5
    • Taxability of Employment Income Services rendered in India; taxable Salary, allowances and benefits taxable; subject to certain exceptions Residential status / place of receipt of salary; not relevant In case of tax equalization – Salary net of hypo tax; grossing up of taxes Tax withholding and compliance by employer (PAYE)© 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent memberfirms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 6
    • Compliance Requirements Employee related compliances: • Permanent Account Number - mandatory tax registration number • Advance taxes on income other than Salary • Filing of return of income - due date of July 31st following the end of tax year Employer related compliances: • Tax Deduction Account Number • Withholding tax compliances: - Monthly tax withholding - by 7th of the following month - Quarterly withholding tax statements (Form 24Q) - Annual withholding tax certificates (Form 16 and Form 12BA)© 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent memberfirms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 7
    • Relief from Double Taxation Provisions of domestic tax law or tax treaty – whichever is more beneficial to taxpayer India has signed tax treaties with more than 100 countries (comprehensive / limited), including Belgium and Luxembourg Relief under tax treaty: • Short Stay Exemption – stay in India < 183 days in a tax year / any 12 month period; other specified conditions • Foreign tax credit of taxes paid in host country on doubly taxed income; subject to proportionate Indian taxes© 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent memberfirms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 8
    • Caution Points Service PE risk under the relevant tax treaty: • Furnishing of services through employees or other personnel • Services other than Technical / Included Services Stewardship activities – No PE risk If PE in India; short stay exemption not available PE risk mitigation; Appropriate documentation© 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent memberfirms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 9
    • Visa Requirements Employment Visa: • Registration with FRRO upon arrival into India within 14 days • Highly skilled / qualified professionals coming for employment , execution of contract, to provide technical services, etc. • Not granted for routine, ordinary, or clerical jobs; availability in India • Salary > USD 25,000 per annum Business Visa: • No registration if stay < 180 days in a single visit • Bonafide business purpose (establish business ventures, explore business opportunities, attending board meetings, etc.)© 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent memberfirms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 10
    • Social Security Provisions International Worker (foreign passport holder) working for Indian establishment Employee’s contribution @ 12 percent; matching contribution @ 12 percent by Employer Effective Social Security Agreement (SSA) / Bilateral Comprehensive Economic Agreement; not required to contribute© 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent memberfirms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 11
    • Answers &Questions
    • Social SecurityAspects
    • Contents  Social Security in India – Applicability  Major developments on International Worker  Employers’ responsibilities for Iws  Social Security Agreement (‘SSA’) and its provisions  Grey Areas  Q&A© 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent memberfirms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 14
    • Social Security in India – Applicability Applicable to companies having twenty or more employees Option for voluntary coverage Employee would also include those who engaged through the contractors Employee is required to contribute to provident fund (‘PF’) @ 12 percent per annum Matching contribution @ 12 percent per annum to be made by employer© 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent memberfirms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 15
    • Major developments on International Worker In October 2008, Employees’ Provident Fund law introduced the concept of International Workers (‘IWs’) IWs included: • Foreign employees working for an establishment in India to which the Act applies • Indian employees deputed to a country with which India has entered into an Social Security Agreement (SSA) IWs and their employers required to make Provident Fund contributions effective 1 November 2008 Contribution to be made on full monthly salary (i.e. without any salary cap)© 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent memberfirms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 16
    • Major developments on International Worker …continued Exemption from contributions available to IWs : • If they are contributing to home country social security ; and • Obtained Certificate of Coverage (‘COC’) under the relevant SSA ; or deputed from a country with which India has entered into a bilateral comprehensive economic agreement (‘agreement’) before 1 October 2008 • No exemption because of salary limit of INR 6500© 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent memberfirms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 17
    • Major developments on International Worker …continued In September 2010, Government of India issued a notification and further amended the EPFS and EPS vis-à-vis IWs. The key amendments were as follows : • Employer will be required to contribute towards pension fund at full salary • Employees from non-SSA countries will not get pension refunds In May 2012, Employees’ Provident Fund Organisation issued a circular to its officers clarifying certain key aspects on IWs • The definition of IWs has been reinterpreted. Under the new interpretation Indian outbound employees who obtain a COC will not be treated as IWs during their employment in SSA countries© 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent memberfirms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 18
    • Major developments on International Worker …continued In October 2012, Government of India has issued a notification changing the EPFS and EPS vis-à-vis the IWs. • IWs who are covered under an SSA between India and any other country can withdraw their accumulated PF balances under EPFS on ceasing to be an employee in an establishment covered under the EPF Act. • The PF accumulations will be paid to IWs in their bank account directly or through the employer • Indian outbound employees who were employed in a country with which India has signed SSA may become IWs© 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent memberfirms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 19
    • Law as on date The IW has to be enrolled from the first day of his employment in India, unless exempted Filing monthly returns for IWs Indian employee working in SSA countries with COC will not be IWs PF contribution on full salary (Employee:12 percent and Employer: 3.67 percent) Pension contribution will be @ 8.33 percent of the full monthly pay funded entirely by employer EDLI contribution (0.5 percent) will be capped to salary of INR 6500 PF Rules to apply irrespective of where the salary is paid In case of split payroll – contribution is required to be made on the total salary© 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent memberfirms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 20
    • Law as on date …continued The dormant account clause for Indian employees will not apply to IWs Refund for employees covered under SSA possible IWs from non SSA country get PF refund on retirement after attaining 58 years PF accumulations will be paid to IWs in their bank account directly or through the employer.© 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent memberfirms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 21
    • Social Security Agreements A Social Security Agreement is a bilateral instrument to protect the interests of the workers in the host country SSA provides for avoidance of double coverage and equality of treatment with the host country workers SSA generally covers the following benefits: • Exemption from double social security contribution • Exportability of benefits • Totalisation of contributory periods for determining eligibility© 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent memberfirms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 22
    • SSAs Signed and in force Sl. No. Country Name Signed on Effective from 1 Belgium 3 November 2006 1 September 2009 2 Germany 1 October 2008 1 October 2009 3 Switzerland 3 September 2009 29 January 2011 4 Denmark 17 February 2010 1 May 2011 5 Luxembourg 30 September 2009 1 June 2011 6 France 30 September 2008 1 July 2011 7 Republic of Korea 19 October 2010 1 November 2011 8 Netherlands 22 October 2009 1 December 2011© 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent memberfirms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 23
    • SSAs Signed but not in force Sl. No. Country Name Signed on 1 Hungary 2 February 2010 2 Czech Republic 9 June 2010 3 Norway 20 October 2010 4 Finland 12 June 2012 5 Canada 6 Nov 2012 6 Japan 16 Nov 2012 7 Sweden 26 Nov 2012 8 Austria 4 Feb 2013 9 Portugal 4 March 2013© 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent memberfirms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 24
    • Benefits covered under SSAs Country Detachment Totalisation Portability Belgium 5 years √ √ Germany 4 years ⤫ ⤫ Switzerland 6 years ⤫ √ 5 years for outbound from India Denmark √ √ 3 years for inbound from Denmark Luxembourg 5 years √ √ France 5 years √ √ Republic of 5 years √ √ Korea Netherlands 5 years ⤫ √© 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent memberfirms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 25
    • Employee benefits compared – SSA and Non SSA countries SSA Countries Non SSA Countries Benefits  Refund of Provident Fund : At the time  Refund of Provident Fund - After of cessation of employment completing the age of 58 years and cessation of employment  Refund of Pension- Minimum service  Pension benefit- After 10 years of of 6 months and cessation of contributory service employment  Totalisation Benefit : The period of  Pension contribution will be forfeited contribution in India will be added for if the service in India is less than 10 determining the eligibility for social years security benefits. Compliance  Not required to contribute towards  The employee is required to join Provident Fund compulsorily from the first day and contribute towards Provident Fund© 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent memberfirms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 26
    • Grey areas In case of Multi-country responsibilities, should an employee contribute for the work he is performing for India only and not for other countries? In the EPF Act, the PF is payable on basic wages, dearness allowance and retaining allowance. So would the following allowances be included in the salary of IWs for calculation of PF? • Hardship allowance • Foreign service allowance • Special allowance© 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent memberfirms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 27
    • Grey areas …continued Mechanism of pension payment abroad Retrospective COCs – Whether COC will be issued for specific retrospective period of employment in the host country In case of Exempt PF Trusts, how will refund / readjustment be done for pension contributions Disconnect between social security and tax law: Permanent Establishment issue Employees hired outside India by branches of Indian establishments Criteria for determining India IWs© 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent memberfirms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 28
    • Answers &Questions
    • Corporate TaxAspects
    • Contents  Introduction  Concept of Permanent Establishment  Case Study I  Case Study II  Secondment Arrangements – Critical Factors  Q&A© 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent memberfirms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 31
    • Introduction International movement of employees is a common practice among multinational companies The Indian tax and regulatory landscape involves certain unique factors that should be kept in mind while evolving a secondment / deputation policy Prolonged stay of employees of foreign companies may create exposure to a taxable presence in India In the next few slides… • Overview of the important tax and regulatory considerations relevant for policy on cross-nation movement of employees. • Certain aspects related to presence of employees in India for performance of contractual obligations for overseas companies, as well as deputation to Indian group companies© 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent memberfirms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 32
    • Concept of Permanent Establishment (‘PE’) F Co CONCEPT  Profits of F Co taxable in India if it carries on business in India through a PE Outside India  Only those profits of F Co which are India ‘attributable’ to India can be taxed in India Carrying on  Attributed profits are taxable on ‘net basis’ business in India  Methods of attributing profits Place of Customer business premises Prolonged presence of employees of F Co in India, may constitute PE in India© 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent memberfirms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 33
    • Concept of Permanent Establishment (‘PE’) …continued  “Fixed” place of business  At disposal of Foreign Company  Carrying on business activity of Foreign company  Presence of employees in excess of 6 months typically triggers Fixed Place PE exposure Fixed Place PE  Business of Foreign Company carried on Furnishing of “services” within India through an “Agent” in India Through employees or other personnel  Scope of activities defined in DTAA Services other than Royalty / Fee for  Agents are of two types: technical services (‘FTS’)  Dependent agent Activities continue for a specified period  Independent agent (90 / 183 days)  Two-Fold conditions to be met to trigger No service PE clause in some Treaties – PE taxability in India Belgium, Netherlands, France Permanent Service PE Establishment Agency PE © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 34
    • Case Study I – Performance of Contract in India Taxability of F Co Situation I Contractual obligation of F Co performed in India Restrictive F Co Service fee definition in qualifies as certain treaties ‘Fee for ‘make available’ Technical Sends Payment of Services’ employees Service to India Yes Fees No Tax withholding @10% / 20% on Service PE exposure gross basis Indian Customer Yes premises Tax withholding @42.024% on net basis Possibility of constitution of Fixed place PE (even where the fee qualifies as FTS) Necessary Compliances to be cannot be ruled out undertaken by F Co and I Co© 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent memberfirms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 35
    • Case Study II – Deputation to Indian Group Company  Payroll of employee to be transferred from F Co to I Co; Situation II  F Co to act purely as salary disbursement agent for Assignment to administrative convenience; Indian group Company  Social security / retirement benefits continue to be with F Co. Oversees bank F Co account of employee Outside India Secondment of India  F Co release the employees employees Reimbursement of salary from their job cost of employees responsibilities;  Employees to work under the Critical agreements: control and supervision of I Co;  Agreement between F Co and I Co secondees  I Co to reimburse salary cost of secondees to F Co without  Cost Reimbursement Agreement any mark up; between F Co and I Co  Employment agreement between  Position of not withholding Employees I Co and secondees taxes on such cross charges may be taken© 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent memberfirms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 36
    • Case Study II – Indirect Tax Implications  Should not qualify as a case of ‘supply’ of manpower since payroll / employment of Employee is Oversees bank transferred from F Co to I Co F Co account of employee  Instead could be construed as provision of ‘recruitment services’ to I Co. However, no Service Outside India tax should arise in the absence of specific Secondment of India consideration employees Reimbursement of salary cost of employees  In relation to salary / social security disbursement by F Co: • F Co to act pure agent of I Co for administrative I Co convenience – Not liable to Service tax in such a scenario • Advisable that F Co charge nominal amount from I Co under cost reimbursement agreement – In such Employees a case, Service tax payable on such notional value© 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent memberfirms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 37
    • Case Study II – Regulatory / Transfer Pricing Implications  Regulatory Aspects • Entire salary of employee can also be paid by I Co Oversees bank F Co account of employee directly in his foreign bank account, if employee deputed to I Co from its holding company Outside India • In other cases, specific approval from the Indian Central Bank (‘RBI’) may need to be taken to do so Secondment of India employees Reimbursement of salary cost of employees  Transfer Pricing Implications • Cross Charge would need to be reported in TP I Co documentation of I Co • Appropriate documentation needs to be maintained by the I Co to prove cross charge at ‘Arm’s Length Price’ Employees© 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent memberfirms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 38
    • Secondment Arrangements – Critical Factors No single indicator is conclusive – Courts have looked at different aspects of Secondment Arrangement to adjudicate on tax implications Secondment Agreement and surrounding facts critical to demonstrate that I Co is the ‘economic’ / ‘real’ employer. F Co should not be responsible for work of employees Secondment Agreement shall demonstrate the employer-employee relationship, capturing the roles / responsibilities of secondees vis-à-vis I Co, terms of remuneration, as well as defining the reporting norms. Lien on job with F Co should not be kept© 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent memberfirms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 39
    • Secondment Arrangements – Critical Factors …continued Critical to establish that Secondees are working under complete supervision/ control/ management of I Co and F Co is not providing any services to I Co through them Documentary evidences like international assignment policy, time records, Secondment Agreement, minutes of the meeting need to be looked at Presence of Employees need to be counted in terms of ‘solar days’ and not ‘man days’ Need to obtain certainty by obtaining certificate under section 197 of the Act from the tax authorities or seeking Advance Ruling© 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent memberfirms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 40
    • Answers &Questions
    • Thank YouAshish GuptaDirector – Tax – IEST : +91 (124) 3074342M: +91 98 1085 5938E: agupta1@kpmg.comRambir DalalDirector –Tax – IEST : +91 (124) 3345062M: +91 99 1034 8012E: rambir@kpmg.comNidhi MaheshwariDirector – Tax – Corporate TaxT : +91 (124) 3074322M: +91 98 1058 3215E: nmaheshwari@kpmg.comKPMG in IndiaBuilding No. 10, 8th FloorTower - BDLF Cyber City Phase - IIGurgaon, India
    • Ahmedabad Hyderabad Safal Profitaire 8-2-618/2 B4 3rd Floor, Corporate Road, Reliance Humsafar, Opp. Auda Garden, 4th Floor Prahlad Nagar Road No. 11, Banjara Hills Ahmedabad – 380 015 Hyderabad 500 034 Tel +91 (79) 4040 2200 Tel +91 40 6630 5000 Fax +91 (79) 4040 2244 Fax +91 40 6630 5299 Bangalore Kochi Solitaire, 139/26, 3rd Floor, 4/F, Palal Towers, Inner Ring Road, M. G. Road, Koramangala, Ravipuram, Kochi 682016 Bangalore 560071 Tel +91 (484) 302 7000 Tel +91 80 3980 6000 Fax +91 (484) 302 7001 Fax +91 80 3980 6999 Chandigarh Kolkata Infinity Benchmark, Plot No.G-1, SCO 22-23 10th floor, Block - EP & GP, 1st floor. Sector 8 C Sector - V, Salt Lake City Madhya Marg Kolkata 700091 Chandigarh 160019 Tel: +91 33 44034066 Tel : 0172 3935778 Fax: +91 33 4403 4199 Fax 0172 3935780 Chennai Mumbai No. 10, Mahatma Gandhi Road, Lodha Excelus, 1st Floor, Nungambakam, Apollo Mills Compound, Chennai 600 034 N.M. Joshi Marg, Mahalakshmi, Tel +91 40 3914 5000 Mumbai 400 011 Fax +91 40 3914 5999 Tel +9122 39896000 Fax +91 22 39836000© 2013 KPMG, an Indian Registered Partnership and a member firmof the KPMG network of independent member firms affiliated with Delhi/ NCRKPMG International Cooperative (“KPMG International”), a Swiss Pune Building No.10,entity. All rights reserved. 703, Godrej Castlemaine Tower B, 8th Floor, Bund Garden DLF Cyber City, Phase – II Pune 411 001The KPMG name, logo and "cutting through complexity" are Gurgaon 122002 Haryana Tel: +91 20 3058 5764/ 65registered trademarks or trademarks of KPMG International Tel +91 124 3074000 Fax: +91 20 30585775 Fax +91 124 2549101Cooperative ("KPMG International").