Budget 2016 Presentation - Part i (Transfer Pricing and International Tax)

Unravelling Transfer Pricing and International Tax Proposals
3rd March 2016
1
Part I

Sr. No. Topic of Amendment Slide Nos.
1 Tax Rate for Foreign Companies 4 - 5
2 No MAT on certain Foreign Companies 6 - 7
3 Equalisation Levy 8 - 9
4 Country By Country Report 10 - 24
5 New Transfer Pricing Documentation - Master File 25 - 27
6 Place of Effective Management 28 - 30
7 Changes in Penalty Provisions 31 - 34
8 Change in Deadline for Transfer Pricing Assessments 35 - 37
9 Extension of Deadline for Transfer Pricing Assessments 38 - 39
10 Tax Department cannot file appeal to ITAT against DRP’s Order 40 - 41
2

Sr. No. Topic of Amendment Slide Nos.
11 Section 206AA: Exemption to Non-Residents from PAN requirement 42 - 43
12 New Dispute Resolution Scheme 44 - 45
13 Stay of Demand 46 - 50
14 Changed Definition of Unlisted Securities Under Section 112(1)(c) 51 - 52
15 Special Notified Zone for Foreign Diamond Mining Companies 53 - 54
16 Modification in Conditions of Special Tax Regime for Offshore Funds 55 - 56
17 Storage and Sale of Crude Oil stored as part of Strategic Reserves 57 - 58
18 Incentives for International Financial Service Centers (IFSC) 59 - 60
19 General Anti Avoidance Rule (GAAR) 61 - 62
3

40% 18.5%
Tax Rate MAT Rate
 Surcharge at 2% if Total Income exceeds Rs. 1
Crore; and 5% if Total Income exceeds Rs. 10
Crores
 Education Cess and Secondary & Higher
Education cess at 3% of Income Tax and
Surcharge
5

No PE
Foreign Company
Last year, to give relief to FIIs, the MAT provisions were made inapplicable to the income of FIIs. However that
amendment was WEF AY 2016-17. So, the issue for prior AYrs remained to be addressed.
Now, in Budget 2016, Foreign Companies are made exempt from MAT, it they meet specified conditions.
Condition 1:
India
Outside India
India Should have
a DTAA or TIEA
with the residence
country of Foreign
Company
Condition 2: If condition 1 is not fulfilled then this
condition should get fulfilled
No registration
required under
Companies Act
Foreign Company
India
Outside India
7

Resident Person
Carrying on Business or
Profession
Non Resident
India
Non Resident having a
PE
Outside India
Payment made for
Specified Services Deduction at source
“Equalisation Levy” means the tax
leviable on consideration received or
receivable for any specified service.
“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
“Online” means a facility or service or
right or benefit or access, that is
obtained through the internet or any
other form of digital or
telecommunication network
Equalisation Levy will be charged at 6% (to be deducted at source) of
consideration for Specified Service received/ receivable by a Non-
Resident person from:
(i) A Person Resident in India who carries on business and profession; or
(ii) A Non-Resident having a PE in India
Payment made for
Specified Services
9

No Equalisation Levy to be deducted, where:
• Non-Resident Service Provider has a PE in India and Specified Service is effectively connected with such PE
• Aggregate consideration received in Financial Year from a Resident Person/ Non Resident having PE in India is less
than Rs. 1 lakh
• The specified service is not availed by Resident Person/ PE of Non Resident for the purpose of carrying on business or
profession – Equalisation Levy applies only to B – to – B transactions.
The Equalisation Levy will come into effect from the date which will be notified by the Central Government
10

 Expenditure will not be allowed to the service-receiver on failure to deduct the equalisation levy
• As per proposed Section 40 (a) (ib) no deduction shall be allowed if any consideration paid or payable to a non-
resident for a specified service on which equalisation levy is deductible under the provisions of Chapter VIII of
the Finance Act, 2016, and such levy has not been deducted or after deduction, has not been paid on or before
the due date for filing of return of income
 Income of Non-Resident Service Provider will be exempt
• The income arising from rendering of Specified Services will be exempt from income-tax under Sec. 10 (50)
• Only equalisation levy of 6% will be levied
11

 DTAA Benefits will not be available
• The equalisation levy is not the same as “income-tax” ; equalisation levy is different from “income-tax
• In fact, equalisation levy is proposed to be charged under a Separate Chapter (Chapter VIII) of the Finance Bill
2016
• Hence, equalisation levy is not covered by the DTAAs/Tax Treaties
• So, no DTAA/Tax Treaty benefits will be available to the Non-Resident Service Provider
Reporting
• Resident Persons carrying on Business or Profession and Non-Residents having PE in India will have to –
 File before the AO a Statement (after the end of the FY) in prescribed Form reporting the particulars of all
Specified Services received during the FY.
• The date of filing the Statement, the Form, and the Particulars to be filed, will be prescribed later
• On filing, the AO will process the Statements12

Penalties:
Default Liability to Pay
Failure to deduct the whole or
any part of the levy
In addition to paying the levy, or interest if any, a penalty equal to the amount of levy
that the Taxpayer failed to deduct
Deducted the levy, fails to pay
such levy to the credit of
Central Government
In addition to paying the levy and interest, a penalty of Rs. 1000 per day during which
the failure continues, however, that the penalty under this clause shall not exceed the
amount of levy that the Taxpayer failed to pay
Fails to furnish the Statement
within the time prescribed
Rs. 100 per day during which the failure continues
• No penalty shall be imposable for any failure referred to in the said sections, if the assessee proves to the satisfaction
of the AO that there was reasonable cause for the said failure.
• An assessee aggrieved by an order imposing penalty under this Chapter, may appeal to the CIT(A) within a period of
thirty days from the date of receipt of the order of the AO.
13

New Transfer Pricing Documentation
14

 Organisation for Economic Co-operation and
Development (“OECD”) through its BEPS Action Plan
13 has recommended revised standards for Transfer
Pricing Documentation.
 In order to implement the above, Finance Bill 2016 has
proposed to implement a specific reporting regime in
respect of Country-by-Country reporting (“CbyC”) and
Master File.
 Local File (in the form of “Transfer Pricing Study
Report”) is already required to be filed under Sec. 92D
read with Rule 10D
Master File
Local File
Country-by-
Country Report
containing standardized information
relevant for all MNE group members
referring specifically to material
transactions of the local taxpayer
- information relating to the global
allocation of the MNE's income and
taxes paid; and
- certain indicators of the location of
economic activity within the MNE
group
A three tiered structure for Transfer pricing documentation as
Provided by BEPS Action Plan 13:
15

 A new Section 286 is proposed to be introduced for
CbyC reporting
 CbyC Reporting is applicable for FY 16-17 to an
International Group having Consolidated Revenue
above € 750 million (equivalent INR 5395 crores
approx) in FY 15-16.
 CbyC Report is to be filed on or before the due date of
furnishing of return of income
 Reporting shall be in prescribed format, which shall be
based on the Template provided by the OECD in BEPS
Action Plan 13 Report.
 The CbyC Report Template, as provided by the OECD, is
given in next slides
Country-by-
Country Report
- information relating to the
global allocation of the MNE's
income and taxes paid; and
- certain indicators of the
location of economic activity
within the MNE group
16

Unrelated
Party
Related
Party
Total
Number of
Employees
Tangible Assets
other than Cash
and Cash
Equivalents
Fiscal year concerned:
Currency used:
Name of the MNE group:
Sr.
No.
Entity Tax
Jurisdiction
Revenues Profit (Loss)
before
Income Tax
Income
Tax Paid
(on Cash
Basis)
Income Tax
Accrued –
Current
Year
Stated
Capital
Accumulated
Earnings
Table 1. Overview of allocation of income, taxes and business activities by tax jurisdiction
CbyC Template as provided in OECD BEPS Action Plan 13 Report
17

Table 2. List of all the Constituent Entities of the MNE group included in each aggregation per tax jurisdiction
ResearchandDevelopment
HoldingorManaging
IntellectualProperty
PurchasingorProcurement
Manufacturingor
Production
Sales,Marketingor
Distribution
Administrative,
ManagementorSupport
ProvisionofServicesto
UnrelatedParties
InternalGroupFinance
RegulatedFinancial
Services
Insurance
HoldingSharesorOther
Equityinstruments
Dormant
Other
Constituent
Entities
Resident in
the Tax
Jurisdiction
Name of
the Entity
TaxJurisdiction of
Organisation or
Incorporation if
Different fromTax
Jurisdiction of
Residence
Main Business Activity(ies)
Tax
Jurisdiction
18

Table 3. Additional Information
Please include any further brief information or explanation you consider necessary or that would facilitate the understanding of the
compulsory information provided in the Country-by-Country Report.
19

In the report under BEPS Action Plan 13 the OECD has provided following guidance for preparing CbyC Report -
 Template should cover the fiscal year of the Reporting Entity (see next-to-next Slide for Reporting Entity)
 For constituent entities of a MNC Group, on a consistent basis, report should include (at the discretion of the
Reporting Entity) :
o Information for all Constituent Entities for the fiscal year of the Reporting MNE, or
o information for the fiscal year of the relevant Constituent Entities ending on the same date as the fiscal year
of the Reporting MNE, or ending within the 12 month period preceding such date
 Source of data for CbyC report could be: Consolidated Financials, Separate Entity Statutory Financials, Regulatory
Financials or Internal Management Accounts
 Brief description of sources of data used in preparing report to be given in Additional information section
Certain Important Points for preparation of CbyC report
20

 Source of data once chosen should be consistently used from year to year in preparing the CbyC report
 If there is a change in sources of data, then reasons for change and its consequences to be explained in the
Additional Information section
 Financials of the Foreign Subsidiaries to be translated to Reporting Entitiy’s functional currency –
 conversion to be done at average exchange rate for the year stated in the Additional Information
section of the template.
 No need to make adjustment for difference in accounting principles used in different jurisdictions
 It is not necessary to reconcile the figures of Revenue, Profit and Tax in the CbyC report with the figures in
the Consolidated Financial Statements.
Certain Important Points for preparation of CbyC report
21

Reporting Entity –
Who shall be liable to file
the Report?
OR
An Entity belonging to an International MNC Group, if the
Parent Entity of the group is resident ;-
a) in a country with which India does not have an
arrangement for exchange of the CbyC report; or
b) such country is not exchanging information with
India even though there is an agreement; and
c) this fact has been intimated to the Entity by the
prescribed authority;
A Parent Entity resident in India
22

• Penalty of Rs.5000/dayDefault < 1 month
• Penalty of Rs 15000/day for
period exceeding 1 month
Default > 1 month
• Penalty of Rs 50,000/day for
default after service of order
Default continues
even after order
levying penalty
issued
What is the penalty
for non-furnishing of
the CbyC report?
The Reporting Entity may offer defence of reasonable cause (for delay) for non-levy of penalty
23

• Penalty of Rs.5000/day
Default before
service of penalty
order
• Penalty of Rs 50000/day for
default beyond date of service
Default continues
after service of
penalty order
• Penalty of Rs 50000/day
Wilful inaccurate
submission
What is the Penalty for
non-submission/
inaccurate submission of
information before the
prescribed authority?
The Reporting Entity may offer defence of reasonable cause (for delay) for non-levy of penalty
24

Master File
containing standardized information
relevant for all MNE group members
 Entities being constituent of an International MNC
Group shall maintain and furnish the Master File
 A Proviso to Section 92D(1) and a new sub-section (4)
in Section 92 is proposed to be introduced
 Penalty of Rs.5 lacs will be levied for non-furnishing of
the Master File to prescribed authority
 Reporting shall be in format which will be prescribed
later
 Manner of furnishing and time limit for furnishing
Master File will be prescribed
 It may be noted that, as of now, no Monetary
Threshold is prescribed for maintaining and filing of
the Master File - this means that, regardless of the
Group Consolidated Turnover, the Master File has to
be maintained by all the Entities which are part of an
International MNC Group
25

Following are the broad points on which details are to be reported/disclosed in a Master file:
 Organizational structure
o Illustrate the legal and ownership structure
 Description of MNC’s business
o Important drivers of business profit;
o Description of supply chain for group’s five largest products/services;
o Description of important service agreement;
o Main geographic market for group’s products/services;
o Important business restructuring transaction
 MNC’s intangibles
o A general description of the MNC’s overall strategy for the development, ownership and exploitation of
intangibles
o Location of principal R&D facilities and R&D management.
o List of intangibles important for Transfer pricing purposes and legal owner of the intangible
o List of important agreements among identified associated enterprises related to intangibles, including cost
contribution arrangements, principal research service agreements and licence agreements.
26

Following are the broad points on which details are to be reported/disclosed in a Master file (Continued):
 MNC’s intercompany financial transactions
o General description of how group is financed,
o Identification of any member of group that provide a central financing function for the group
o Description of groups general transfer pricing policies relating to financing arrangements
 MNC’s financial and tax positions
o List of Unilateral APAs and other tax rulings relating to allocation of income among countries
27

The POEM provision is deferred by 1 year. Hence, POEM provisions will now apply from FY 2016-17
 The determination of residence, based on POEM,
shall be now applicable from AY 2017-18
 Transition Provisions (New Chapter XII-C) have
been inserted in the I T Act 1961
• Problems may arise when a foreign company is held
to be resident, in course of assessment, under the
POEM rule.
• In such scenario, the Foreign Company cannot
comply with various procedural provisions (TDS,
Filing of Return of Income, etc.) because the
relevant FY would have already ended.
• So, Transition Provisions have been proposed in the
Budget 2016.
Final POEM Guidelines from CBDT are still awaited
Foreign
Company
POEM in India
(Resident in India)
Will not only be taxed - in India - on Global Income , but will also have
to comply with the provisions of the Income Tax Act, 1961 related to:
• Computation of Total Income (including Transfer Pricing, Filing of
Return of Income, etc.)
• Treatment of Unabsorbed Depreciation
• Set-off and Carry Forward of Loss
• Collection & Recovery of Tax (TDS, etc.)
29

POEM Transition Provisions
 A transition mechanism is provided for a company which is incorporated outside India and has not earlier been
assessed to tax in India.
 The Central Government will be empowered to notify exception, modification and adaptation subject to which,
the provisions of the Act relating to –
 computation of income,
 treatment of unabsorbed depreciation,
 setoff or carry forward and setoff of losses,
 special provision relating to avoidance of tax, and
 the collection and recovery of taxes
shall apply in a case where a foreign company is said to be resident in India due to its POEM being in India for the
first time, and where such company has never been resident in India before.
 These transition provisions would also cover any subsequent previous year upto the date of determination of
POEM in an assessment proceedings.
 However, once the transition is complete, then normal provision of the Act would apply.
30

50% Penalty of Tax
Payable
Under-Reporting of
Income
New Penalty Provisions
In new penalty provisions in section 270A there will be
two categories of penalties”
i) 50% of Tax payable on Under-Reported income, and
ii) 200% of Tax Payable on Mis-Reported income
Mis-Reporting of
Income
200% Penalty of Tax
Payable
A Taxpayer shall be considered to have Under-Reported his
Income if –
(a) the income assessed is greater than the income
determined in the return processed under Sec. 143(1)(a);
(b) the income assessed is greater than the maximum
amount not chargeable to tax, where no return of income
has been furnished;
(c) the income reassessed is greater than the income
assessed or reassessed immediately before such
re assessment;
(d) the amount of deemed total income assessed or
reassessed under MAT is greater than the deemed total
income determined in the return processed under
Sec. 143(1)(a);
(e) the amount of deemed total income assessed under MAT
is greater than the maximum amount not chargeable to tax,
where no return of income has been filed;
(f) the income assessed or reassessed has the effect of
reducing the loss or converting such loss into income.
32

The Under-Reported income, for purpose of penalty, shall not include the amount of Under-Reported income
represented by any addition or adjustment made by the TPO, where the Assessee has:
i) Maintained information and documents prescribed under section 92D (i.e. Rule 10 D)
ii) Declared all International Transactions, and
iii) Disclosed all the material facts relating to the International Transactions
Under-Reporting of Income - Exception for Transfer Pricing Cases
33

Penalty for Mis-Reporting of Income
A Taxpayer shall be considered to have Mis-Reported his income if there is:
i) misrepresentation or suppression of facts;
ii) non-recording of investments in books of account;
iii) claiming of expenditure not substantiated by evidence;
iv) recording of false entry in books of account;
v) failure to record any receipt in books of account having a bearing on total income;
vi) failure to report any international transaction or deemed international transaction under Chapter X.
 Failure to report any International Transaction or Deemed International Transaction, under Transfer Pricing
Regulations, will be treated as Mis-Reporting of Income, and will, therefore, invite penalty of 200% of Tax Payable
on Mis-Reported Income.
34

Existing Provisions:
 The Transfer Pricing Officer has to pass the Transfer Pricing Order before 60 days prior to the last date of making
regular assessment [Section 92CA(3A)]
 Under the existing provisions, the last date for making regular assessment under Section 143(3) in TP cases is 3
years (or 36 months) from the end of the assessment year.
 So, the TPO has to pass order within 34 months from the end of the assessment year
Example:
For AY 2012-13, the TPO had to complete the TP assessment and pass the TP Order latest by 31st January 2016
(WEF 1ST June 2016)
36

New Provisions:
 WEF 1st June 2016, the time limit for completion of TP Assessment under Section 92CA(3) as well as of the regular
assessment under Section 143(3) stands revised
 The new time limits are:
i) For completion of Regular Assessment Under Section 143(3) in TP Cases is within 33 months from the end of
the assessment year
ii) For Completion of TP Assessment Under Section 92CA(3) is within 31 months from the end of the assessment
year
Example:
For AY 2013-14 the TPO has to pass TP Order latest by 30 October 2016, and then the AO has to pass Draft Assessment
Order latest by 31st December 2016
37

• Time limit for completion of TP Assessments is extended, to allow sufficient time to TPO for completing TP Assessment,
when there is delay in receiving information from foreign jurisdiction, or when the assessment proceedings are stayed
by court
• Where the TPO seeks information from the foreign jurisdiction, the time limit for completion of TP Assessment will be
extended by ‘the time taken for receipt of the information’ and if after such extension the time remaining to complete
the TP Assessment (on receipt of information) is less than 60 days, the last date to complete TP Assessment will be
‘further extended so that at least 60 days are available to the TPO’ to complete the TP Assessment
• Similar extension of time-limit will also be made in cases where the assessment proceedings are stayed by a court
Example:
1st April 2016
15th October 2016
30th October 2016
(Deadline)
31th March 2017
30th May 2017
(Revised Deadline)
• TPO Seeks information from Foreign Jurisdictions, or
• Court Stays the Assessment Proceedings
Information received from
foreign jurisdiction, or Court lifts
the stay
39

• In Transfer Pricing Cases and
• In cases of Foreign Companies
Dispute Resolution
Panel (DRP)
 WEF 1st June 2016, the Tax Department (i.e. the
AO) cannot file any appeal to ITAT against the
order passed by DRP
 Only the Taxpayer can file appeal to ITAT against
the order passed by DRP
Implication:
• DRP will hesitate to pass any Order in favour of
Taxpayers (i.e. against the Revenue), because the
Revenue will no longer have any appeal remedy
Passes DRP Direction under
section 144C on objection of
Taxpayer against additions
proposed by AO/TPO
41

Resident
Person
Non-Resident Person
India
Outside India
Current Position:
• Resident Indian has to withhold higher tax
(20% TDS), on any sum or income or amount
on which tax is deductible under Chapter
XVIIB, if the Non-Resident recipient does not
have a PAN in India (Section 206AA)
Proposal:
• Section 206AA (20% TDS if no PAN) should not
apply to a Non-Resident, or to a Foreign
Company, in respect of :-
 Interest on long-term bonds as referred to
in section 194LC
 Any other payment,
subject to such conditions as may be
prescribed.
 What document will suffice In lieu of PAN will
be notified later.
Payment
43

Taxpayer
Specified Tax refers to Tax which has been determined in
consequence of, or is validated by, Retrospective Amendment
 An option to settle dispute is provided to Taxpayers (Like
Vodafone) who are affected adversely by the Retrospective
Amendments related to indirect transfers of assets located
outside India
Scheme:
1) Taxpayer has to file a “declaration” in respect of the
Specified Tax, which is in dispute as on 29th February
2016
2) Any appeal before CIT(A), ITAT, High Court or
Supreme Court; or any Writ Petition filed before High
Court or Supreme Court, must be withdrawn before
filing the declaration
3) Any Notice or Claim arising from Arbitration or
Mediation proceedings must be withdrawn, before
filing the declaration
4) Taxpayer has to furnish an undertaking waiving the
right to pursue any remedy or claim in relation to the
Specified Tax
5) On filing of a valid declaration, the Designated CIT
will determine, the tax payable
6) Then, the tax must be paid within 30 days
 The Taxpayer (the Declarant) will get immunity from
Penalty and also from Prosecution
Specified Tax
45

Assessee
Assessing Officer
Payment of
15% of
disputed
Demand while
appeal is
pending before
CIT(A)
Grant of Stay
of Demand
 The CBDT has issued office memorandum F.No.
404/72/93-ITCC, Dated 29 February 2016, issuing
guidelines to the Assessing Officer for Stay of Demand.
 The Salient Features of the guidelines are highlighted in
the next Slide.
In his Budget Speech the Finance
Minister (‘Mr. Arun Jatley’) stated that
the Income Tax Department is issuing
instructions making it mandatory for
the Assessing Officer (‘AO’) to grant
Stay of Demand once the Assessee
pays 15% of the Disputed Demand,
while the appeal is pending before
CIT (Appeals)
47

Particulars Highlights
What new conditions
have been put in place
for stay of demand?
• The outstanding demand shall be disputed before CIT (A)
• On payment of 15% of the disputed demand the AO shall grant stay of demand till disposal
of first appeal
 Subject to the two Exceptions listed below
Exception I – The AO
can demand payment
of a sum higher that
15%
If the AO is of the view that the nature of addition resulting in the disputed demand is such
that payment of a lump sum amount higher than 15% is warranted (e.g. in a case where
addition on the same issue has been confirmed by appellate authorities in earlier years or the
decision of the Supreme Court /or jurisdictional High Court is in favour of Revenue or addition
is based on credible evidence collected in a search or survey operation, etc.) or,
Exception II – The AO
can allow payment of a
sum lower that 15%
If the AO is of the view that the nature of addition resulting in the disputed demand is such
that payment of a lump sum amount lower than 15% is warranted (e.g. in a case where
addition on the same issue has been deleted by appellate authorities in earlier years or the
decision of the Supreme Court or jurisdictional High Court is in favour of the assessee, etc.)
CBDT Office Memorandum F.No. 404/72/93-ITCC, Dated 29 February 2016
48

What should the AO do in
cases of Exception I or
Exception II?
The AO should refer the matter to the administrative Pr. CIT/ CIT who, after considering
all relevant facts, shall decide the proportion of demand to be paid by the assesse, as
lump sum payment, for granting stay of the balance demand.
What should the assessee do
if he is still aggrieved, despite
the AO granting stay of
demand, after payment of
15% of disputed tax?
The assessee can approach the jurisdictional administrative Pr. CIT/ CIT for a review of
the decision of the AO.
Time limit for disposing of
the stay application by AO
The AO shall dispose of the stay petition within 2 weeks of its filing.
Time Limit before Pr. CIT or
CIT of disposing off AO’s
reference application or
assessee’s review application
AO’s reference application or assessee’s review application shall be disposed of by the
Pr. CIT/ CIT within 2 weeks of the AO making such reference, or the assessee filing such
review, as the case may be.
49

Conditions that the
AO can impose for
granting stay of
demand
The AO may impose such conditions as he may think fit. He may, among other things -
• require an undertaking from the assessee that the assessee will cooperate in the early
disposal of appeal failing which the stay order will be cancelled;
• reserve the right to review the order passed:
 after expiry of reasonable period (say 6 months), or
 if the assessee has not cooperated in the early disposal of appeal, or
 where a subsequent pronouncement by a higher appellate authority or court alters the
above situations;
• reserve the right to adjust refunds arising, if any, against the demand, to the extent of the
amount required for granting stay.
Effective date The new guidelines for stay came into effect immediately from 29 February 2016
50

Non-Resident/
Foreign
Company
 However, no benefit of indexation of cost of acquisition
and no benefit of ‘conversion of cost & consideration in
foreign currency’, is to be allowed while computing the
LTCG
Whether Shares of a Private Company are “Securities”?
Under the Existing provisions of Section 112(1)(c)(iii)
a Non Resident or a Foreign Company has to pay 10%
tax on Long Term Capital Gains arising from the
transfer of Unlisted SecuritiesTransferee
Transfer
Unlisted
Securities (Long
Term)
Unlisted
Securities (Long
Term)
Issue:
New Provisions (WEF AY 2017-18):
To clarify the above issue, “Shares of a Private Company”
are also now specifically included in Section 112(1)(c)(iii)
Existing Provisions:
52

Foreign Diamond
Mining Company
Special Notified Zone
Under Section 9, No Income shall be deemed to accrue or arise in India to a Foreign Diamond Mining Company
through, or from, activities confined to display of uncut & unassorted diamonds in any Special Notified Zone
Outside India India
Display of uncut
& unassorted
Diamonds
54

Last year, Section 9A was inserted to facilitate relocation
of Fund Managers of offshore funds to India
Offshore Fund Fund Manager
• Among other things, last year, 13 eligibility conditions were prescribed in Section 9A(3)
• Out of those 13 conditions, following 2 conditions raised some concerns:
a) the fund should be a resident of a country or a specified territory with which India has a DTAA or TIEA
b) the fund shall not carry on or control and manage, directly or indirectly, any business in India or from India
• This year the above mentioned 2 conditions have been relaxed as under (WEF AY 2017-18):
a) The fund can be established or incorporated or registered in a country or a specified territory notified by the
Central Government in this behalf
b) the condition of control and management of any business “from India” is removed
Investments
in India
Outside India India
Investing Into India
Mere Presence of Fund
Manager is not a Business
Connection of Offshore
Fund into India
56

Storage of
Crude Oil
Foreign National Oil
Companies/ Foreign
Oil MNCs
Resident
Person
Sale
India
Outside India
New Section 10 (48A) (WEF 1st April 2016)
 To encourage Foreign National Oil Companies and
Oil MNCs to store their crude oil in India & to
build up strategic oil reserves, it is proposed -
 To exempt the income of Foreign Company
on account of storage of crude oil in a facility
in India and sale of crude oil, from such
facility, to any Resident Person.
Conditions to be fulfilled:
I such storage and sale by the Foreign Company is
pursuant to an Agreement or an Arrangement
entered into by the Central Government or
approved by the Central Government; and
II. having regard to the national interest, the Foreign
Company and the Agreement or Arrangement are
notified by the Central Government in this behalf.
58

Unit Established on
or after 1st April 2016
IFSC
• MAT only at 9%, and
• No DDT on distribution
of Dividend
Income solely in
Foreign Exchange
If the Stock Exchange is located in IFSC
• No Securities Transaction Tax (STT)
• No Capital Gain Tax, for investors, from Foreign Currency
Transactions, even when no STT has been paid
Stock
Exchange
60

 Last year GAAR was deferred by 2 years, and was thus made applicable from AY 2018-19 i.e. FY 2017-18
 This year in his Budget Speech, the FM has reiterated the commitment of the Government to
implement GAAR from FY 2017-18
62

Nilesh Patel - CPA (USA), Ex-Addl CIT (Former IRS Officer)
M:+919819060323 E: Nilesh@taxwize.in W: www.taxwize.in
63

Budget 2016 Presentation - Part i (Transfer Pricing and International Tax)

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