MNC tax implications

1. MNC Tax
Implications
DR RAJU INDUKOORI

2. Tax Neutrality
 In its most common usage, tax neutrality refers
to tax provisions that conform to an
ideal tax system. A tax provision that is consistent
with such an ideal system is described as neutral.
 Tax that does not cause individuals or firms to
shift their economic choices, such as to choose
among different goods, inputs, locations, etc.
 It doesn’t favor certain kind of economic activity
over others
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3. Tax Equity
• Some government offer incentives in terms
of taxes on certain projects like
environment friendly, exports, priority areas,
etc.
• USA offers Tax Equity to Solar Power
projects
• Investment tax credit (ITC)
• Bonus Depreciation
• Accelerated Depreciation
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4. Tax implications of dividend
remittance by overseas affiliate
 dividend received by an Indian company
from its foreign affiliate, would be taxed at
the full rate of @ 30%.
 15% on dividends received from foreign
affiliates (in which Indian company holds
26% or more equity).
http://tfguru.com/categories/banking/remittance-guide/866-remittance-of-dividend
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5. Controlled Foreign
Corporations (CFCs)
• Most US based MNCs conduct their foreign
operations through controlled foreign
corporations (CFCs)
• These are foreign corporations owned more
than 50% either in market value or voting
power.
• CFCs are incorporated in the host country and
governed by the laws of host country.
• CFCs are commonly used for foreign
operations.
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6. Controlled Foreign
Corporations (CFCs)
• Operating as a foreign branch immediately
exposes foreign source of income to
domestic tax rates.
• CFCs can reinvest abroad without having to
pay domestic tax rates until they are
repatriated to the parent.
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7. Organizational Form of CFC
CFC Foreign Branch
Legal A foreign Corporation is a
legal entity in host country
A branch is a part of the parent for
legal purposes.
Tax Taxes are paid on foreign
source income as it is
repatriated to the parent.
Tax is paid as income as earned by
the branch.
Disclosure Limited to the activities in
the host country.
Parent might be required to disclose.
Liability Liability is limited to
activities in the host
country.
Legal liability extends to the parent.
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8. Transfer Pricing
 It refers to the internal pricing system used
between related parties.
 It determines how much profit is reported and
the tax rate to be paid.
 It is related to the rules and methods for pricing
transactions within and between enterprises
under common ownership or control.
 This is more relevant to accounting and taxation
for MNCs.
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9. Transfer Pricing in India
 Transfer pricing was Introduced in Sections 91,
92A, 92B and 92 Explain transfer pricing in the
Income Tax Act of 1961
 TP ensures that the transaction between 'related'
parties is at a price that would be comparable if
the transaction was occurring between unrelated
parties.
 TP applies to both domestic and international
transactions which fall above a threshold in
terms of deal value
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10. Transfer Pricing & Taxation
 Transfer Pricing Regulations were introduced in
2001.
 The transaction are categorized as
 International Transaction
 Deemed International Transaction
 Specified Domestic Transaction
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11. Thank You
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