Presentation by CA. Sudha G. Bhushan in the webinar on Changes in International Taxation and FEMA arising out of Covid 19

1. Recentdevelopments
InternationalTaxandFEMA
20th May2020
CA.SudhaG.Bhushan

2. ❖Impact of Covid 19
❖Developments in Tax regime around
the world
❖Changes in India
❖Tax
▪ Equivalisation Levy
❖FEMA
▪ The changes in FDI Policy
▪ Other changes
TopicsofDiscussion
2

3. OECD–ImpactofCOVID-19
Analysis and Guidance on Tax Treaties

4. • The OECD has released guidance addressing how
governments should apply standard tax treaty
provisions when multinational group taxpayers
or their employees are forced to change their
behavior to comply with coronavirus (COVID-19)
travel restrictions and quarantines.
• In the fight to control the spread of the COVID-19
pandemic, governments have implemented
unprecedented measures such as travel
restrictions, banning of public gatherings, and
quarantine rules. These measures are severely
limiting the mobility of workers and could have
significant adverse tax consequences in
cross-border situations.
Introduction
COVID-19 - Impact
4

5. OECDAnalysis
Addressing Concerns
• The OECD report tries to address the many tax issues
arising from the COVID-19 crisis and provides
recommendations for countries that can be taken into
account when applying their tax treaties.
• The report is based on a careful analysis of the
international tax treaty rules, and it addresses concerns
about the following issues: creation of permanent
establishments, residence status of a company (place of
effective management), cross-border workers, and
residence status of individuals.
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6. Permanent
Establishment
Concerns and Suggestions
6

7. PermanentEstablishment
• Home Office - Teleworking from home (i.e. the home office) would not create a PE for the business/employer,
either because such activity lacks a sufficient degree of permanency or continuity or because, except through that
one employee, the enterprise has no access or control over the home office.
• Agency PE - An employee’s or agent’s activity for Non Resident employer in a State is unlikely to be regarded as
habitual if he or she is only working at home in that State for a short period because of government directives
extraordinarily impacting his or her normal routine. Therefore, Agency PE would not be created.
• Construction PE - It appears that many activities on construction sites are being temporarily interrupted by the
COVID-19 crisis. The duration of such an interruption of activities should however be included in determining the
life of a site and therefore will affect the determination whether a construction site constitutes a PE.
OECD - Analysis of Tax Treaties and the Impact of the COVID-19 Crisis 7

8. Residential Status –
Company
8

9. ConcernsrelatedtotheResidenceStatusofaCompany
• The COVID-19 crisis may raise concerns about a potential change in the “place of effective management” of a
company as a result of a relocation, or inability to travel, of chief executive officers or other senior executives.
• As per OECD, it is unlikely that the COVID-19 situation will create any changes to an entity’s residence status under
a tax treaty. A temporary change in location of the chief executive officers and other senior executives is an
extraordinary and temporary situation due to the COVID-19 crisis and such change of location should not trigger a
change in residency, especially once the tie breaker rule contained in tax treaties is applied.
• OECD recommends that all relevant facts and circumstances should be examined to determine the “usual” and
“ordinary” place of effective management, and not only those that pertain to an exceptional and temporary
period such as the COVID-19 crisis.
OECD - Analysis of Tax Treaties and the Impact of the COVID-19 Crisis 9

10. CrossBorderWorkers
&ResidentialStatus
Concerns and Guidance
10

11. Individuals–ResidentialStatus
• With regards to COVID-19 impact in residential status of individuals, two main situations could be imagined:
1. A person is temporarily away from their home (perhaps on holiday, perhaps to work for a few weeks) and
gets stranded in the host country by reason of the COVID-19 crisis and attains domestic law residence there.
2. A person is working in a country (the “current home country”) and has acquired residence status there, but
they temporarily return to their “previous home country” because of the COVID-19 situation. They may
either never have lost their status as resident of their previous home country under its domestic legislation,
or they may regain residence status on their return.
OECD - Analysis of Tax Treaties and the Impact of the COVID-19 Crisis 11

12. Individuals–ResidentialStatus
• OECD Guidance
1. In the first scenario, it is unlikely that the person would acquire residence status in the country where the
person is temporarily because of extraordinary circumstances. But even if the person becomes a resident
under such rules, if a tax treaty is applicable, the person would not be a resident of that country for
purposes of the tax treaty. Such a temporary dislocation should therefore have no tax implications.
2. In the second scenario, it is again unlikely that the person would regain residence status for being
temporarily and exceptionally in the previous home country. But even if the person is or becomes a resident
under such rules, if a tax treaty is applicable, the person would not become a resident of that country under
the tax treaty due to such temporary dislocation.
OECD - Analysis of Tax Treaties and the Impact of the COVID-19 Crisis 12

13. Global
Covid-19Analysis
Tax Development Summary
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14. India
Covid-19Analysis
Tax Relief Measures and FDI Developments
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15. India–TaxReliefMeasures
The following tax relief measures have been implemented:
• Postponement of the direct tax payment deadline arising between March 31, 2020 and June 30, 2020, to June
30, 2020 without additions to tax.
• A reduced interest rate for certain tax payments made by 30 June 2020, and a waiver of late-filing penalties.
• GST payment deadlines postponed.
• The deadline for filing the GST annual return for FY 2018-2019 has been extended to 30 September 2020.
• Extension of the date for certain tax procedural actions, generally postponed to 30 June 2020.
• A new tax dispute resolution scheme, allowing an option to settle tax when a percentage is paid by 30 June
2020.
• Extension of the 2019 reporting deadline for FATCA and CRS to 30 June 2020 from 31 May 2020.
• The due date for payments regarding Employees Provident Fund contributions for March 2020 has been extended
to 15 May 2020 (from 16 April 2020).
India – Tax Relief Measures and FDI Developments 15

16. India–ResidencyConditionsRelief
The Central Board of Direct Taxes (CBDT) in order to avoid hardship in case individuals who are stranded in different
countries has issued Circular 11 of 2020 dated 8 May 2020 (Circular).
The CBDT has introduced the following relaxations (for determining the residential status of an individual for FY 2019-
20) in respect of an individual who came to India before 22 March 2020 and was:
• Unable to leave India on or before 31 March 2020. In such cases, the period of stay in India from 22 March 2020 to
31 March 2020 will not be taken into account for determining the residential status; or
• Quarantined in India due to COVID-19 on or after 1 March 2020 and departed from India through an evacuation
flight by 31 March 2020, or was unable to leave India by 31 March 2020. In such cases, the period of stay in India
from the start of quarantine to the date of departure or 31 March 2020, as the case may be, will not be taken into
account for determining the residential status; or
• Departed from India on an evacuation flight by 31 March 2020. In such cases, the period of stay in India from 22
March 2020 to the date of departure will not be taken into account for determining residential status.
India – Tax Relief Measures and FDI Developments 16

17. Recentdevelopments:
InternationalTaxandFEMA
CA.SudhaG.Bhushan

18. Theprogress
Foreign Exchange Management Act and FDI Policy
18
Finance Act
2015
15th Oct 2019 17th Oct 2019
December 5,
2019
Notification
dated April 22,
2020

19. 19
On October 15, 2019, The Ministry of Finance, had proposed certain amendments to Foreign
Exchange Management Act, 1999
These amendments resulted in a power shift from the RBI to the Central Government (CG),
enhancing the CG involvement in the foreign exchange transactions a bifurcation of
instruments into debt instruments and non-debt instruments has been introduced
The Central Government notified the Foreign Exchange Management (Non-Debt
Instruments) Rules, 2019 ("NDI Rules") on October 17, 2019 superseding the erstwhile
Foreign Exchange Management (Transfer of Issue of Security by a Person Resident
outside India) Regulations, 2017 ("TISPRO") and the Foreign Exchange Management
(Acquisition and Transfer of Immovable Property in India) Regulations, 2018
The RBI also notified the Foreign Exchange Management (Debt Instruments)
Regulations, 2019 superseding TISPRO, and the Foreign Exchange Management
(Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019
The Central Government has also Further notified the Foreign Exchange
Management (Non-Debt Instruments) (Amendment) Rules, 2019 ("Amendment
Rules") on December 5, 2019 primarily incorporates the provisions of the Press
Note 4 of 2019, recently announced by the Department for Promotion of Industry
and Internal Trade ("PN4"), which were not reflected in the NDI Rules

20. RBIChart
20
Eligible Instruments for
investment by Person
resident outside India
(PROI)
Non-Debt
Instruments
Notification issued by Ministry of Finance,
Central Government
[previous - FEMA (TISPRO) Regulations,
2000]
FEM (Non-debt
instruments)
Rules, 2019
FEM (Mode of Payment and
Reporting of Non-Debt
Instruments) Regulations, 2019
Debt
Instruments
Notification issued by Ministry of Finance,
Central Government
[Previous - Reg 5(4) read with Schedule V
of FEMA (TISPRO) Regulations, 2000]
FEM (Debt
Instruments)
Regulations, 2019

21. ChangesinFDIpolicy
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22. India-FDIDevelopments-PressnoteNo.3(2020Series)dated17April
2020
The Government of India has reviewed the Foreign Direct Investment (FDI) policy for decreasing opportunistic takeovers/acquisitions of
Indian companies due to the current COVID-19 pandemic and amended existing FDI policy as contained in Consolidated FDI Policy, 2017.
Present Position
• A non-resident entity can invest in India, subject to the FDI Policy except in those sectors/activities which are prohibited.
• A citizen/entity of Bangladesh can invest only under the Government route.
• A citizen/entity of Pakistan can invest, only under the Government route, in sectors/activities other than defence, space, atomic energy
and sectors/activities prohibited for foreign investment.
Revised Position
• A non-resident entity can invest in India, subject to the FDI Policy except in those sectors/activities which are prohibited.
• However, an entity of a country, which shares land border with India or where the beneficial owner of an investment into India is situated
in or is a citizen of any such country, can invest only under the Government route.
• Further, a citizen/entity of Pakistan can invest, only under the Government route, in sectors/activities other than defence, space, atomic
energy and sectors/activities prohibited for foreign investment.
• In the event of the transfer of ownership of any existing or future FDI in an entity in India, directly or indirectly, resulting in the beneficial
ownership falling within the restriction/purview of the above, such subsequent change in beneficial ownership will also require
Government approval.
The above decision will take effect from the date of FEMA notification.
India – Tax Relief Measures and FDI Developments 22

23. ❑ Background
❑ Rationale
❑ The Levy
❑ The Act
❑ The Problems
❑ The Compliance
EqualisationLevy
Developments
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24. EqualisationLevy-Developments
India – Equalization Levy 24
Background Rationale The Levy

25. EqualisationLevy-Background
• The rapid growth of information and communication technology has resulted in substantial expansion of the
supply and procurement of digital goods and services globally, including India. The digital economy is growing at
an incredible pace, significantly faster than the global economy as a whole.
• At present, in the digital domain, business may be conducted without regard to national boundaries and may
dissolve the link between income-producing activity and a specific location. Hence, business in digital domain
doesn’t take place in any physical location but instead in “cyberspace”.
• Persons carrying business in digital domain could be located anywhere in the world. Entrepreneurs across the
world have been quick to evolve their business to take advantage of these changes. It has also made it possible for
the business to conduct themselves in ways that did not exist earlier and given rise to new business models that
rely more on digital and telecommunication network, do not require physical presence and derives substantial
value from data collected from such networks.
India – Equalisation Levy 25

26. EqualisationLevy-Rationale
• The new business models have created ne w-tax challenges . The typical taxation issues relating to e-commerce
are:
(i) The difficulty in characterizing the nature of payment and establishing a nexus or link between taxable
transaction, activity and a taxing jurisdiction.
(ii) The difficulty of locating the transaction, activity and identifying the taxpayer for income tax purposes.
• The digital business thus, challenges physical presence -based establishment rules. If permanent establishment
principles are to remain effective in the new economy, the fundamental PE components developed for the old
economy i.e. place of business, location, and permanency must be reconciled with the new digital reality.
India – Equalisation Levy 26

27. EqualisationLevy
The Act
• In order to address the problem of taxing the borderless business entities, Chapter VIII of Finance Act, 2016 titled
“Equalisation Levy” introduces a levy of 6% of the amount of consideration for specified services received or
receivable by a non-resident not having Permanent Establishment in India who carries out business or profession,
or from a non-resident having Permanent Establishment in India.
• "specified service" means online advertisement, any provision for digital advertising space or any other facility or
service for the purpose of online advertisement and includes any other service as may be notified by the Central
Government in this behalf
• "permanent establishment" includes a fixed place of business through which the business of the enterprise is
wholly or partly carried on;
• It is important to note than the incomes liable to Equalization Levy are exempt from Income Tax under section
10(50) of the Income Tax Act, 1961.
India – Equalisation Levy 27

28. EqualisationLevy
The Act
• Exclusions from the levy: -
i. the non-resident providing the specified service has a permanent establishment in India and the specified service is effectively
connected with such permanent establishment (Income Tax would be liable on such income)
ii. the aggregate amount of consideration for specified service received or receivable in a previous year by the non-resident from
a person resident in India and carrying on business or profession, or from a non-resident having a permanent establishment in
India, does not exceed one lakh rupees
iii. where the payment for the specified service by the person resident in India, or the permanent establishment in India is not for
the purposes of carrying out business or profession.
iv. sales, turnover or gross receipts of the service provider is less than Rs. Two crore during the previous year (applicable to e-
commerce operators)
India – Equalisation Levy 28

29. EqualisationLevy
The Act
Equalisation Levy on E-commerce Operators
• The Finance Act 2020 has now introduced a new provision i.e. section 165A in the Finance Act, 2016, to enhance the scope of the
Equalisation Levy.
• Equalisation Levy will now be extended to an e-commerce operator on ‘e-commerce supply and services’ undertaken on or after
1 April, 2020.
• An “e-commerce operator” has been defined to mean a non- resident who owns, operates or manages digital or electronic
facility or platform for online sale of goods or online provision of services or both.
• “e-commerce supply and services” has been defined to mean:
(i) online sale of goods owned by the e-commerce operator; or
(ii) online provision of services provided by the e-commerce operator; or
(iii) online sale of goods or provision of services or both, facilitated by the e-commerce operator; or
(iv) any combination of the above activities.
India – Equalisation Levy 29

30. EqualisationLevy
The Act
• The Levy shall be at the rate of 2% on the amount of consideration towards e-commerce supply and services made or provided or
facilitated by an e-commerce operator to:
i. A person resident in India
ii. A non-resident in specified circumstances
iii. A person who buys goods or services using an IP address located in India
• Specified circumstances means:
i. sale of advertisement, which targets a customer, who is resident in India or a customer who accesses the advertisement
though internet protocol address located in India; and
ii. sale of data, collected from a person who is resident in India or from a person who uses internet protocol address located in
India.
• The levy on e-commerce operators has to be deposited quarterly by the operator itself along with filing of returns annually.
India – Equalisation Levy 30

31. EqualisationLevy
The Act
Practical Illustration on Levy of Equalisation Levy of 2% on Foreign e-Commerce Operator
• Amazon (assuming it has no PE in India) receives a consideration of Rs. 100 crores towards the e-commerce supply
of goods and services in its Indian market place Amazon.in, to Indian Residents during the previous year 2020-21.
• Thus, by virtue of the newly inserted section 165A of the Finance Act,2016 Amazon shall be required to deposit an
equalisation levy @ 2% on its total turnover of Rs 100 crores from the e-commerce supply of goods and services to
the Indian Residents, i.e Rs. 2 crores with the exchequer in India.
India – Equalisation Levy 31

32. EqualisationLevy
Problems
The Equalisation Levy like any other taxation system brings about a lot of challenges some of which are described
below: -
1) Foreign entities supplying the service may be unwilling to bear the burden of Equalisation Levy and burden may
have to be borne by the Indian service recipient instead.
2) Equalization Levy, not being a form of Income Tax may not be eligible for treaty benefits under Double Taxation
avoidance agreements and hence, may cause an obstacle for cross-border trade.
3) The levy will entail additional compliance burden which may affect medium and small businesses who avail the
services of players like Google Inc etc to advertise their products.
India – Equalisation Levy 32

33. EqualisationLevy
Compliances
• Equalisation Levy at the rate of 6% on aggregate consideration paid or payable (2% in case of payment being made
to electronic commerce operator) needs to be deducted by the recipient of specified services.
• Payment: The Equalisation Levy deducted during a calendar month needs to be deposited by 7th day of the
following month (Challan no. ITNS 285).
• Return: The periodical return for Equalisation Levy needs to be filed annually (for every Financial Year) by 30th June
of the following Financial Year. The return needs to be filed in Form no. 1 electronically.
• For electronic commerce operators, the payment has to be made quarterly as below:
India – Equalisation Levy 33

34. ThankYou
Sudha Bhushan
+91 9769033172
sudha@taxpertpro.com
www.taxpertglobalsolutions.co.in
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