The document discusses several key income tax issues facing corporates in India. It summarizes recent changes increasing the burden on companies to prove the source of loans/borrowings and other sums received. This includes proving the source of the source for share capital transactions. It also outlines the tax implications if the source cannot be proved, such as the amounts being taxed at 60% in the hands of the company. Additionally, the document examines issues like the tax treatment of supplies of free of cost assets to Indian entities by foreign group companies and withholding tax obligations on payments made through credit cards.

1. Key Income Tax Spheres for
Corporates: Getting Down to Brass
Tracks
CII Tax Leaders Forum
(Western Region)
1st Meeting: FY 2023-24

2. `
1
2
Index
AI at the Helm: Charting a New Era of Intelligent Taxation
• Digital Transformation in Tax Administration: Connecting the Dots
• Digital Transformation in Tax Administration: The Game Changer
4 Concluding Thoughts - Tax framework is in midst of an unprecedented overhaul
5
Steering the tax governance bandwagon
• Tax Transparency: the silent ‘T’ in ESG
• Assessment Readiness: Having a game plan ready
6
Glossary
Existing and emerging tax landscapes for corporates
• Reassessment notices: Hitting like a bolt from the blue
• Supply of FoC assets to India by foreign group entities: Coast is not clear
• Additional Burden to Prove 'Source of Source': Crossing a river to get water
• Withholding on payment using credit card: To know the ropes
• Tax on Royalty/ FTS: A moving puzzle
• Withholding on payment to NRs: Up in the Air
• Royalty/ FTS vs EQ Levy 2.0: Reading between the lines
• Foreign Tax Credit: Caught in a cleft stick
• Withholding of refund: Turning over a new leaf
• TDS Credit mechanism: A makeover
• Employee Stock Option Plans: Through the prism of regulations
• Secondment: A Tug of war with Service Tax
3
Annexures

3. AI at the Helm: Charting a New Era of Intelligent Taxation

4. `
Digital Transformation in Tax Administration: Connecting the Dots
AI/ Data Analytics/ Machine Learning/ Blockchain - being extensively used in tax administration to
integrate reporting made by transacting parties, to identify and detect high-value/ high-risk
transactions for examination
CORPORATE
INDIVIDUAL
Softex
Forms
FCNR
Account
Bank
Statements
Customs
Records
AROUND THE GLOBE
USA: Compliance Data Warehouse
(CDW) collects data from several
databases and using forward
looking data analysis, examines
non-compliance
Australia: ANGIE (Automated Network
& Grouping Identification Engine)
creates maps of corporate entities/
related transactions across time
UK: Implemented big data
analytics in income tax segment
and observed an increase of
$5.4 billion in taxes
Italy: VeRa algorithm used to
compare tax filings.
1 million high-risk cases identified
Canada: Compares wealth based
on public sources with tax
returns. Sources public registers,
bank accounts to identify
undeclared assets and spending
Singapore: In-house network
visualizer with graph database
used to analyse multi-layered
relationships between entities
during audits/ investigations
Among countries belonging to OECD, 38% used AI or machine learning in tax administration in
2019, while another 34% were in development stage
As of May 20221, India has entered into 21 Tax Information Exchange Agreements (TIEAs) - Apart
from exchange of information, representatives of one country may be permitted to conduct tax
examinations in territory of another country, including interviews of individuals and examination of
records
1Source: Publicly available media articles
Visa
Records

5. `
INCOME TAX1
• Income Tax Transaction Analysis Centre - leverage data analytics in tax administration and undertake
tasks related to data integration, data processing, data quality monitoring, data warehousing, master
data management, data analytics, web/ text mining, alert generation, compliance management,
enterprise reporting and research support
• Compliance Management Centralized Processing Centre - Campaign Management Approach
(consisting of emails, SMS, reminders, outbound calls, letters) to support voluntary compliance
• Analyse pattern of inconsistencies between declared income and expenditure
• Combined harnessing of databases containing IT returns, TDS/ TCS statements, IT forms and forms
from multiple Regulators (say, MCA, RBI, GST etc) and social networking sites etc
Project Insights
Big Data Management System
Machine Learning
Project ADVAIT & BIFA
360-degree vision profiling
Indian Revenue's Initiatives
OIDAR
registration
and filing
EQ Levy 2.0
payments
SFT
reporting
Scrutiny of NR
investments
AIS
Statements
Filings with MCA
INDIRECT TAX1
• Expand taxpayer base and enhance tax compliance, pilot underway for Geotagging of
premises and Biometric authentication
• Identify fraudulent applications for input tax credits via false GST registrations
• Identify fake purchase invoices for claim of input tax credit
PROPERTY TAX1
• Discrepancies in data sets and ground survey, cross-verified using AI tools and
satellite imaging for property tax assessment
Integrating natural
intelligence with AI –
need for human
intervention
Data Privacy and
Confidentiality
Public disclosure
of Algorithms/
Selection
Parameters/ Model
Weights alike
Annual CASS
Circular?
Evolving tax laws
and differing
interpretations of
subtle provisions
The road ahead on technological advancements
1Source: Publicly available media articles
Digital Transformation in Tax Administration: The Game Changer

6. Steering the tax governance bandwagon

7. `
Tax Transparency: the silent ‘T’ in ESG
TTR
Tax Transparency – an increasingly high priority topic in board room discussions
Voluntary annual report that gives an overview of tax contributions made in the countries
where a conglomerate operates
Objectives
• Draw stakeholder’s
attention to Company’s
Commitment to meet
its tax obligation
• Increase Stakeholder
Accountability
• Addressing tax risks
Pre-requisites
• Robust internal controls
to ensure accuracy of
information disclosed
• Seamless exchange of
tax data among entities
across the globe
• Tax Alignment in ESG
Strategy
Benefits
• Enhanced Stakeholders'
confidence
• Risk identification and
assessing potential tax
risks
• Alignment with global
standards
• No prescribed Laws in India that mandates issuance of TTR
• Listed Indian entities issuing TTR1 on voluntary basis -
• Countries such as Australia, UK, Netherlands, Poland, Spain, etc have introduced frameworks for issuing TTR
• OECD through BEPS introduced CbCR which mandated multinational companies to disclose corporate taxes paid in each
jurisdiction annually
Global Recognition
• Tax contribution data
• Specifics about countries of operation
• Effective tax rate
• Guiding tax principles
• Tax Strategy
• Tax Risk and Governance Framework
• Approach adopted to ensure compliance with tax
laws and regulations
• Relationship with Tax Administration
• Participation in Tax Advocacy Consultation
• Independent Practitioner's Assurance Report on
global tax contributions
What does it contain?
1 Refer Annexure 3 for sample TTRs

8. `
Refer Annexure 4 for a snippet of key findings from an assessment readiness study done by us
• Rising Income Tax Assessments and Litigations: With usage of AI and computer systems, the number of taxpayers being scrutinized and sent notices, are on the rise
• Heightened Information Requirements: Quantum of information being sought by Revenue Authorities is high and in depth
• Time Constraints in Information Submission: Shorter response time being provided to taxpayers to respond to notices
Present landscape of Income tax litigations
Crucial factors for being assessment ready!
01
02
03
04
05
Understanding and analysing litigation
history of the entity
Identifying potential income tax issues that
could be questioned by the Revenue
Authorities
Reviewing documentation maintained and
understanding the sufficiency of the same in
relation to potential issues
Structuring and organizing data in a manner
sought for, by the Revenue Authorities
Keeping reasonable explanation and adequate
documentation ready for matters that could
potentially have tax ramification
Illustrative list of information that may be sought, collation of which would require
considerable time and effort
• Reco of TDS Returns data vis-à-vis Expenses forming part of SPL
• Reco of Turnover as per FS vis-à-vis GST Returns filed
• Details of sundry creditors and debtors outstanding, trade payables at end of FY
• Being more equipped for providing responses to tax assessment notices
• Having adequate supporting documents in place, to effectively defend for litigative positions
taken in the entity’s ROI
Key benefits of assessment readiness
Assessment Readiness: Having a game plan ready
• Details of assets purchased during the FY along with copy of invoices
• Reco of CBEC Export Import data vis-à-vis export/ import reported in books
• Reco of receipts offered to tax in ROI vis-à-vis receipts reflecting in TDS schedule
• Workings of foreign exchange fluctuation gain/ loss along with underlying documents

9. Existing and emerging tax landscapes for corporates

10. `
Existing and emerging tax landscapes for corporates
Royalty/ FTS vs EQ Levy 2.0:
Reading between the lines
TDS Credit mechanism – A
makeover
Withholding of refund: Turning
over a new leaf
Foreign Tax Credit: Caught in
a cleft stick
Additional Burden to Prove
'Source of Source': Crossing
a river to get water
The income-tax sphere for corporates has
witnessed more momentum that ever in the
past few years with steps taken to deepen
income tax net, streamlining procedures,
and contemporizing laws with global
developments. The consistent gumption of
the Government although exemplary has
witnessed businesses going back to the
drawing board to underpin and discern their
changing tax obligations that could have a
bearing on commercial transactions. This
section is an attempt to separate wheat from
the shaft on a few of such tax issues by
capturing the interpretational ambiguities
and practical challenges posed by
taxpayers.
Supply of FoC assets to India by foreign
group entities: Coast is not clear
Withholding on payments using
Credit card payment: To know
the ropes
Tax on Royalty/ FTS: A
moving puzzle
Withholding on payment to
NRs: Up in the Air
ESOP: Through the prism
of regulations
Secondment: A Tug of war
with Service Tax
Reassessment notices: Hitting
like a bolt from the blue

11. `
AY
2021-22
AY
2024-25
Time limit for issuance of notice for cases with
income escaping assessment < INR 50L
AY
2030-31
Time limit for issuance of notice for cases with
income escaping assessment > INR 50L
If ROI is not filed, to be filed within 30 days from the date of notice
ROI Filed
Any information in
accordance with risk
management strategy of
CBDT
Any audit objection that
assessment has not been
made in accordance with
the Act
Any information received
in relation to
Tax Treaty
Any information made
available to Tax Officer
under scrutiny
assessment proceedings
Any information which
requires action in
consequence of order
of ITAT or Court
Information
suggesting
income has
escaped
assessment?
Few transactions in the recent past which have attracted Section 148/ 148A Notice
ROI filed with
skewed donation -
income ratios
ROI showing
huge international
payments
No more reason to believe
Primary condition to trigger reassessment proceedings changed
from "reasons to believe" to "information suggesting that
income has escaped assessment"
Information relating
to accommodation
entries from GST
portal
Residents Non - Residents
• Investments made by NRs and resultant income (buy back/ dividend/ interest) (Reported in SFT)
• E-commerce supply of goods or services (Reported in OIDAR compliance/ EQ Levy statements)
• Royalty/ FTS received from resident payer (Reported in Form 27Q or EQ Levy statement)
• Movement of employees of F Co to India (Detected through scrutiny of India group company)
• Infrastructure, if any owned/ managed/ operated by F Co in India
Reassessment notices: Hitting like a bolt from the blue
Information cannot become a ground to give unbridled powers to
the Revenue. Whether it is "information to suggest” or "reason to
believe" the benchmark of "escapement of income" still remains the
primary condition to be satisfied1
1 Refer Annexure 1 for caselaw citations

12. `
Foreign Parent Co
India Group Co
Transfers
equipments
free
of
cost
Re-exports
equipment's
pursuant
to
project
completion
Taxmen's view
• Value of FoC assets is income in hands
of I Co
• To avoid increase in cost base, Parent Co
not shifting cost of FoC assets to Indian
Co
• Other 'Arrangements' to reduce Indian
taxes (indirect consideration)
Taxpayers’ Arguments
• Legal ownership of FoC assets always
with the overseas Parent Co
• Assets re-exported pursuant to project
completion
• No real income accrued
• FoC assets – Capital in nature
• FoC assets not received as consideration
for services provided - hence not 'benefit'
1 Refer Annexure 1 for caselaw citations
Treatment of FoC assets in the books of
F Co. Write-offs clearly detrimental!
Mapping of assets imported on FoC
basis with subsequent re-exports,
Reconciliation is the key
Standard Operating Procedures, if
any, for usage of FoC assets in India
Mandate I Co to submit usage
report(s) of FoC assets
Legal arguments by taxpayer predominantly derive strength from facts established, documentation
endorsing the same and by establishing robustness of internal procedures
Judicial precedents1 have upheld that Indian Co
derives benefit from FoC/ loan assets provided
by F Cos, taxed under Section 28(iv) of IT Act
Tax ramifications for Indian
Co and from overall group
tax cost perspective
− No guidance available on valuation
mechanism for determining value of benefit
− Not delved upon taxability of assets
re-exported, post usage in India
Intercompany service agreement
and global policy, capturing the
essence of arrangement
Bailor-Bailee relationship to be
established
Overall percentage of
scrapped/ discarded FoC
assets, if significant, could
establish benefit to I Co
Period of usage of FoC asset in
India, converging with useful
life of asset, could establish
benefit to I Co
Pattern of initiation of request for
shipment of FoC assets (whether by
F Co or I Co) also a key determining
factor
Supply of FoC assets to India by foreign group entities: Coast is not clear

13. `
Withholding on payments using Credit Card: To know the ropes
TDS/ EQ
Levy?
Payment through credit card/ e-wallet/ auto-debit in bank account
TDS/ EQ Levy on payments made through credit cards/ digital modes?
'To do' would mean bearing the tax cost
due to the inherent practical impossibility
to 'deduct' tax prior to making the
remittance
'Not To Do' would mean interest and
penal consequences for TDS/ EQ
levy defaults and consequent
expense disallowance
To avoid excess tax cost, enter into
arrangement with the vendor
(where business team has connect
with SPOC of vendor) for refund of
taxes paid on behalf of vendor
Since there is no mechanism, what to do?
High Net Cost for
Resident towards TDS
on 'Gross up' basis
Other Key Considerations
• Is resident liable to furnish Form 15CA/ Form 15CB on remittances made to NRs​
through credit cards?
• Can resident consider consolidating multiple payments and file consolidated Form
15CA/ Form 15CB for aggregate payments having same nature for same non-
resident vendor?
• Grossed up tax – claim of expenditure under Section 37​ of the Act?1
Software subscriptions Subscription to online
journals, periodicals, etc
Trainings
Travel
Corporate credit cards are usually administered
by Directors of Company. Such credit cards used
to make payments for the Company would be
subject to LRS provisions under FEMA
Consequently,
TCS becomes
applicable
Corporate membership fee
Advertisements
1 Refer Annexure 1 for caselaw citations

14. `
Particulars
Effective from April 1, 2022
Proving "Source" Proving "Source of Source"
Type of taxpayer All taxpayer Companies All taxpayers
Nature of credits covered Any sum
Share Application, Share Capital,
Share Premium
Loan, borrowing or any
such sum
Applicability in case of
NR investor/ lender* Yes No Yes
LOANS AND
BORROWINGS
NR investor/ lender does not include venture capital fund or venture capital company as per Sec 10(23FB)
Initiative to counter the practice of conversion
of unaccounted money through masquerade
of loan/ borrowing
6 1
2
3
4
5
Whether "any such sum" includes proceeds from
issue of debentures/ CCDs or trade advances taken
during the normal course of business?
Can tax officer investigate "Source of Source" even
for share capital transactions? [Section 68 of IT Act
(second proviso)]1
NR lenders/ investors may be approached for private
financial documents to prove credit worthiness
and genuineness of source:
• Financial Statements
• Income Tax Returns
• Bank Account
Statements
• KYC Documents
• Board Resolutions
approving investment in/
lending to I Cos
Tax officer may issue notice under Section 133(6) of
the IT Act to source of amounts disbursed as loans/
borrowings or any such sum to I Co1
• Cash credits taxable at
60% in hands of I Co
• Higher surcharge of 25%
• No set-off of losses/
expenses against Cash
Credits
• Penalty – 10% of taxes
• Interest and other
expenses relating to loan
could be disallowed
Key
Considerations
Once initial onus of proving identity, genuineness of
transaction and creditworthiness of parties is
discharged, can tax officer proceed to make further
enquiry with investor/ lender?1
For
India
Co
Additional Burden to Prove 'Source of Source': Crossing a river to get water
1Refer Annexure 1 for caselaw citations

15. `
10%
15%
20%
- File ITR
- TRC
- Form 10F
- File ITR
- TRC
- Form 10F
10%
10.92%
- File ITR
- TRC
- Form
10F
Exempt
from filing
ITR
Tax Rate under Treaties
Country Rates
Singapore
10%
Switzerland
Germany
Netherlands
Malaysia
Luxembourg
USA
15%
UK
Philippines
Mauritius
Australia
Demark
20%
Italy
IT Act Tax Treaty
Which is beneficial?
Erstwhile
provisions of
the IT Act
10.92%
(10% base rate
plus maximum
surcharge of 5%
and cess of 4%)
FA, 2023
(wef April 1, 2023)
21.84%
(20% base rate
plus maximum
surcharge of 5%
and cess of 4%)
IT Act
Which is beneficial?
Tax Treaty
Applicable
rate (A)
Applicable
rate (B)
Additional
tax in India
(A-B) =
4.08%
Erstwhile What's New!
Applicable
compliances
Applicable
compliances
Countries that do not have Tax Treaty with India would
definitely bear the full brunt of increased TDS, a smaller list
though
Business Income vs Royalty – Taxation on net vs gross
• Increased rate assumes 50% profitability in India
• NRs likely to transfer cost of higher rate to Indian companies, through tax
protected agreements or grossing-up arrangements
Additional tax
in India (A-B) =
9.08%
Tax on Royalty/ FTS: A moving puzzle

16. `
Withholding at beneficial Tax Treaty rate on India sourced income
1
Documents required
TRC from
Revenue
Authorities of
country of
residence of NR
II Electronic Form 10F
NR to obtain
PAN for
creating e-
filing profile?
Authorised
Signatory of NR
to obtain DSC to
facilitate e-filing
Relaxation for NRs from e-filing Form 10F till September 30, 2023*
NR not having PAN in
India
NR not required to have PAN
as per relevant provisions of
the IT Act
AND
I
Cases where online Form 10F (and hence, PAN) may not be required
Where TRC contains prescribed information mentioned below
• Status
• Country of incorporation or registration
• TIN or unique identification number
• Period for which TRC applicable
• Address in country of residence
TRCs containing prescribed
information1
- Germany
- Sweden
- Singapore
- Brazil
- Australia
- Malaysia
TRCs not containing
prescribed information1
- USA
- UK
- Spain
No PAN - Higher withholding tax rate of 20% [Section 206AA]
2
Reality: Relaxation from furnishing PAN by NRs, if following
information furnished to resident payer
Name, e-mail id,
contact number,
address
TIN or unique
identification
number
TRC
Withholding on payment to NRs: Up in the Air
Issues around valid TRC
• Fiscal period could be calendar year • TRC not available at the time of transaction
• TRC issued only for specified income • Application for TRC made, not obtained
1Refer Annexure 2 for sample TRC’s

17. `
Royalty/ FTS vs EQ Levy 2.0: Reading between the lines
Transactions where EQ Levy at 2% is already
paid and subsequently ruled as Royalty/ FTS
by the Revenue Authorities
2%
10%
Courts have held that since EQ Levy at 2% is
already applied on payment under consideration,
TDS to be deducted at 8% (ie 10% - 2%)1
Withhold at 8%
?
HC
1Refer Annexure 1 for caselaw citations
Proviso to Section 163 of FA 2016
(Exclusion from EL)
Explanation 1 to Section 10(50) of IT Act
(Exclusion from income exemption)
Consideration taxable as Royalty
or FTS in India under IT Act read with
DTAA is excluded
Nuances in Terminology
Judicial Interpretation
A sum is chargeable to tax if it has
the potential of being assessed to tax
irrespective of whether tax is finally
levied*
Taxable connotes tax payable (ie
tax that is due to be paid)*
Income chargeable to tax as Royalty
or FTS in India under IT Act read with
DTAA not eligible to claim exemption
(clarificatory amendment)
Taxable as Royalty / FTS under IT Act
and DTAA and taxes paid
Taxable as Royalty/ FTS Description EQ Levy 2.0
Scenario
1
2
Software Royalty not taxed by virtue of
definition under DTAA and favourable
judicial precedence
Chargeable to tax but not taxable
3
Chargeable to tax but not taxable
FTS not taxable by virtue of “make
available" clause in DTAA
4
Transactions where EQ Levy at 2% is already
paid and subsequently ruled as Royalty/ FTS
by Revenue Authorities
Taxpayer Revenue Authorities

18. `
Withholding of refund: Turning over a new leaf
Post Amendment (wef FY 2023-24)
Covered under Section 245(2) of the IT
Act
AO can withhold any refund becoming due to the
taxpayer (say pursuant to rectification, ITAT OGE
etc)
Proceeding for assessment/ reassessment should be
pending in order to withhold refund
Refund can be withheld until the completion of any
pending assessment/ reassessment
Withholding of
refund – If grant
adversely affects
the Revenue
Pre-amendment
Notice should be issued under Section 143(2)
of IT Act in order to withhold refund
AO could withhold refund arising from
Section 143(1) intimation
Refund can be withheld till completion
of assessment of that year
Covered under Section 241A of the IT
Act
Impact Analysis
– Timeframe for computing additional interest on refund to exclude the period for
which refund is withheld [Proviso to Section 244A(1A) of IT Act]
– Working capital crunch for taxpayers with active litigation history
– Requirement for rationalisation of advance taxes to ensure non-blockage/ offset
against outstanding demands
– If it is anticipated that the refund claim is mainly attributable to TDS credits,
taxpayers could consider obtaining lower withholding tax certificates for reducing
the tax incidence at source and ease working capital flow
Open Points
– On filing a ROI, would it be deemed that the case is
pending for assessment even before receipt of a scrutiny
notice?
– Whether pendency of assessment/ reassessment
proceedings would necessarily be deemed to be
adversely affecting the revenue without any specific
reasons?

19. `
TDS Credit mechanism: A makeover
Credit claimed in year in which
Form 26AS reflects TDS Credit
TDS credit given to deductee only in the year in which
such income is offered to tax
Currently how
TDS credit is
claimed
Make application in prescribed form to AO before March 31, 2024 (ie 2
years from the end of FY in which TDS is deducted)
1
AO to issue amended order of assessment [143(3)] or intimation [143(1)]
allowing credit of TDS in relevant FY
- Section 154 of IT Act - Period of 4 years to be reckoned from end of FY in which tax has been
deducted
- TDS not be allowed in any other FY
Interest on refund from the date of the application to the date on which refund is granted
FY 2021-22
FY 2020-21
• Income accrued and offered
to tax
• TDS Credit not reflecting in
Form 26AS and not claimed
FY 2022-23 FY 2023-24
Amendment (Effective from October 1, 2023)
• Actual payment received and
TDS deducted
• TDS credit reflecting in Form
26AS
2
Open-ended Issues
Clarification required on past year’s TDS credits - FY
2019-20 and prior years
Whether taxpayer would be allowed claim of TDS credit
made in RoI in the FY in which it is reflected in Form
26AS?
Is AO empowered to grant TDS credit even if not
claimed in the ROI?

20. `
Foreign Tax Credit: Caught in a cleft stick
Unutilised/ ineligible FTC could be
claimed as business expense
deduction under Section 37(1) of IT
Act
FTC claimed in India Unutilised FTC
• Can credit be claimed under Section 91 despite
existence of DTAA?
• Should claim of FTC be restricted to DTAA rate?
• Whether credit of income tax paid in foreign country in
relation to the income which is exempt in India, can be
availed as tax credit?
Foreign
tax
credit
With the availability of DTAA, benefits under Section 91
of the Act, being more beneficial, cannot be denied to the
taxpayer
FTC to be restricted to DTAA rate
Mechanism to compute FTC?
Applying Section 90(a)(ii), FTC can be claimed on
exempt income chargeable under the Act
Cannot be applied while claiming relief under Section 91
as it specifies 'doubly taxed income'
Instances where FTC cannot be claimed:
- Loss making situation
- Income exemption cases (support from
favorable rulings can be taken to claim FTC in
such cases)
Foreign tax credit, in Indian context is becoming
critical and important determinant to arrive group
tax rate in cross border business horizons.
Gross receipt
Net receipt
VS
• No specific disallowance for balance/ unutilised
FTC
• Double jeopardy in succeeding years when
losses incurred in India will be eligible for set-off
against profits
Refund of FTC not admissible but allowable as
business expense
• If DTAA provides for full tax credit, Rule 128
cannot restrict it to ordinary tax credit as it
overrides the provisions of Act
1 Refer Annexure 1 for caselaw citations

21. `
Employee Stock Option Plans: Through the prism of regulations
• Option to exercise ESOP after
termination of employment –
Whether former employer liable
to withhold taxes?
• Is I Co obligated to deduct TDS
during the vesting period when
neither the payee is identified nor
the value of expense is
crystallised?
• Timing of withholding tax in case
there is a lock-in period imposed
on transferability of shares
received upon exercise of ESOP?
• Applicability of withholding tax in
case the ESOPs are exercised by
nominee/ legal heir of the
deceased employee?
ESOP
Schemes
Key considerations for I Co
‒ Claim of expense deduction for
discount on issue of ESOP, a vexed
issue
‒ Indian Co to include ESOP expenses
in operating cost base to cross charge
Parent Co with an arms’ length mark-
up
ESOP buyback
• Withholding tax on ESOP buyback
consideration
• Characterization of buyback
consideration as salary vis-à-vis
capital gains and thereby withholding
obligations
• Claim of ESOP buyback expenditure
Acqui-hire Arrangements
• Taxation aspects on
acqui-hire arrangements, not clear
• Appropriate withholding tax
discharge on perquisite value
Transfer of employees on Merger or Acquisition
Extinguishment of
ESOPs in transferor Co
Grant of ESOP in
transferee Co
Withholding tax Obligation?
Forfeiture of ESOPs granted by
transferor entity without cash
payout or in lieu of ESOP
granted by the transferee Co
Forfeiture of ESOPs granted by
transferor Co for cash payout
• Allowability of ESOP expenses
as deduction to I Co – Whether
deduction can be claimed during
vesting period or at the time of
exercise? Will it be treated as
prior period expense if deduction
is claimed at the time of
exercise?

22. `
Overseas Group
Co
Indian Co
Seconded
employees
1
F Co employees
seconded to I Co
Salary flow
2
Reimbursement
of salary
expense
3
• Reimbursement considered as consideration for "contract for service" instead of "contract of service", service recipient liable to pay service tax on reverse charge basis
• Interpretation of ruling indicate that SC has considered F Co to be economic employer of the employees seconded to I Co
SC Ruling on service tax matter:
Northern Operating Systems
Private Limited1
Secondment: A Tug of war with Service Tax
Principles under income tax to determine whether seconded employees
are under employment of I Co and services not to be considered as FTS Snapshot of few income tax rulings1 on secondment arrangement
Delhi
Bangalore
Mumbai
• AT & T Communication Services (India) P Ltd (ITAT)
• Yamazen Machinery and Tools India (P.) Ltd. (ITAT)
• Yum! Restaurants (Asia) Pte. Ltd (ITAT)
• TPF Getinsa Euroestudios S L (ITAT)
• Serco India Private Limited (ITAT)
• Centrica India Offshore (P) Ltd (HC)
• Abbey Business Services (India) (P) Ltd (HC)
• Flipkart Internet (P) Ltd (HC)
• Google LLC (ITAT)
• Toyota Boshoku Automotive India (P) Ltd
(ITAT)
• Goldman Sachs Services (P) Ltd (ITAT)
• Juniper Networks Inc (ITAT)
• Food World Supermarkets Ltd (ITAT)
• Flughafen Zurich, AG (ITAT)
• Mark & Spencer Reliance
India (P) Ltd (HC)
• Owens Corning Insulating
Systems Canada LP (ITAT)
• Morgan Stanley International
Incorporated (ITAT)
• General Motors Overseas
Corporation (ITAT)
• Faurecia Automotive Holding (ITAT)
• John Deere India (P.) Ltd. (ITAT)
Ahmedabad
Burt Hill Design (P) Ltd (ITAT)
DIT vs Morgan Stanley
Chennai
Nippon Paint (India) Pvt Ltd (ITAT)
SC
1Refer Annexure 1 for caselaw citations
Pune
Test 2 – Economic Vs Legal Employer
Test 1 –
Contract of
Service vis-à-
vis Contract
for Service
Risks and
rewards of
with I Co (like
employer-
employee
relationship)
I Co to establish itself as real employer
Control,
Supervision,
Responsibility
Terms &
Conditions of
Employment
Payment for
Salary &
Social
Security
Legal
Recourse for
Salary dues
Lien on
employment?
Impact of SC Ruling on Income tax issue
Karnataka HC in case of Flipkart Internet1 laid down that SC
ruling is limited to service tax and has no applicability to income tax
Recently Delhi ITAT in case of Serco India1 upheld above
decision with following well settled principles:
• Interpretation of any expression used in context of any
statute not to be automatically imported while interpreting
like expression of other statutes
• Ratio decidendi of case from one enactment, cannot be
applied to an altogether different legislation

23. `
Concluding Thoughts - Tax framework is in midst of an unprecedented overhaul
Courts have held from time
to time that revenue
neutrality does not
absolve taxpayers from
their duty to accurately
report income, pay taxes
and abide by the law
Banking secrecy - no longer
an economic resource.
Financial institutions are
bound by robust regulations
to exchange information
with Tax Authorities
Heightened reliance on
international jurisprudence
and interpretation to analyse
taxability of various streams
of income in India
Increase in inter-linked
compliances, thereby
enhancing complexities
and ambiguities
Striking balance between
fulfilling tax responsibility and
exploring legitimate tax
planning avenues to optimize
tax positions without violating
the spirit or intent of law
Tax becoming a critical part
of ESG conversations
Dispute resolution - Indian
Judiciary continues to be
burdened by high volume of
cases. Pressing need for an
effective gateway to
streamline litigation process,
contributing to a more robust
and responsive tax system
Data harnessing by Tax
Authorities on the rise to gain
insights, ensure accurate
reporting and enforce tax
regulations effectively
Exploration of novel
taxes and frameworks by
the Government to bridge
tax gap as traditional
business models blend
with digital innovation
Happy endings to age-old
interpretational issues on
Royalty/ FTS addressed by
Courts while conversely
burdening taxpayers to look out
for alternative ways to reduce
tax outflow which are in turn
linked to increased
compliances
New age of extending
legal authority beyond
borders has made
non-residents doubtful of
the efficacy of their
compliance systems
What worked in the past may clearly not work in the future - Recent changes in income tax laws and mounting mirages of interpretations force
us to question the viability of several transaction structures used in the past and compliance systems that were in place before

24. Annexures

25. `
Annexure 1: Citations
Topic Principles replied upon Caselaw citations
Reassessment
notices: Hitting like a
bolt from the blue
Information cannot become a ground to give unbridled
powers to the Revenue. Whether it is "information to
suggest” or "reason to believe" the benchmark of
"escapement of income" still remains the primary
condition to be satisfied
Divya Capital One Private Limited [TS-383-HC-2022(DEL)]
Supply of FoC
assets to India by
foreign group
entities: Coast is not
clear
Indian Co derives benefit from FoC/ loan assets
provided by F Cos, taxed under Section 28(iv) of IT
Act
Hewlett-Packard (India) Software Operation Pvt Ltd vs JCIT [2022] [IT(TPA) No 2575/ Bang/ 2019] (Bangalore
ITAT)
Marvell India Private Limited vs DCIT [IT(TP)A No 2082/ Bang)/ 2018] (Bangalore ITAT)
Brocade Communications Systems Private Limited vs DCIT [TS-322-ITAT-2020(Bang)-TP] - (FoC ground
raised but not adjudicated)
Foreign Tax Credit
If there is a DTAA, the benefits under Section 91 of the
Act, being more beneficial cannot be denied to the
taxpayer
Tata Sons Ltd vs DCIT (2011) 10 taxmann.com 87 (Mumbai ITAT)
DCIT vs Rajiv I Modi (2017) 86 taxmann.com 253 (Ahmedabad ITAT)
FTC restricted to DTAA Bhavin A Shah vs ACIT [2017] 81 taxmann.com 176 (Ahmedabad ITAT)
FTC claimed against exempt income Wipro Ltd vs CIT (2015) 62 taxmann.com 26 (Karnataka HC)
Mechanism to compute FTC Elitecore Technologies Private Limited vs DCIT [2017] 77 taxmann.com 149 (Ahmedabad ITAT)
If the taxpayer has not claimed any credit under Section
91 or Section 90, deduction can be claimed under
Section 37 as the same will not be covered under
Section 40(a)(ii) of the Act
Reliance Infrastructure Ltd vs CIT (2016) 76 taxmann.com 257 (Bombay HC)
Income tax deducted outside India cannot be allowed
as business expenditure under Section 37 of the Act in
India as same is covered under the disabling provision
of Section 40(a)(ii) of the Act
DCIT vs Tata Sons Limited (2011) 8 taxmann.com 85 (Mumbai ITAT)
Withholding on
payments using Credit
Card: To know the
ropes
Where the grossing up of TDS on interest payment to
an associate enterprise was contrary to the
arrangement between the parties, it was upheld that
such grossed up TDS is not an allowable expense
Lite-on Mobile India Pvt Ltd vs DCIT (ITA Nos 3194 & 478/Chny/2017)

26. `
Annexure 1: Citations
Topic Principles replied upon Caselaw citations
Additional Burden to
Prove 'Source of
Source': Crossing a
river to get water
Once the assessee presents the details of identity,
creditworthiness of investor and genuineness of
transaction, the onus shifts on AO to prove that the
evidence produced are wrong or non-satisfactory
DCIT vs Acro Exports Trade (P) Limited [2019] ITA No 903 and 905 of 2018 (Mumbai ITAT)
Abhijavala Developers (P) Limited vs ITO [2021] 187 ITD 222 (Mumbai ITAT)
AO may issue notice under Section 133(6) of the Act
directly to F Co lender to seek confirmation on the
transaction carried out with I Co
Talisman Securities Pvt Ltd vs DCIT [TS-482-ITAT-2022(Mum)] (Mumbai ITAT)
Depending upon the facts of the case, AO has the
jurisdiction to ascertain the source of the F Co
depositor in order to determine whether the depositor
is a mere name lender or not, irrespective of the
nature of the sum credited in books of accounts of I Co
CIT vs Sophia Finance Ltd [TS-11-HC-1993(DEL)] (Delhi HC)
Equalisation Levy
2.0: Decipher Implicit
connotation
Where EQ Levy at 2% is already applied on payment
under consideration, TDS to be deducted at 8% (ie
10% - 2%)
Google Asia Pacific Pte Ltd vs CIT [TS-57-HC -2022 (DEL)]​ (Delhi HC)
Sabre GLBL Inc vs DCIT [TS–283–HC–2023 (DEL)]​ (Delhi HC)
Coursera Inc vs ITO [ TS–1142–HC--2021 (DEL)]]​ (Delhi HC)

27. `
Annexure 1: Citations
Topic Principles replied upon Caselaw citations
Secondment: A
Tug of war with
service tax
Secondment of employees -
Favourable Rulings
DIT vs Morgan Stanley & Co [2007] 292 ITR 416 (SC)
Burt Hill Design (P) Ltd vs DDIT (International Taxation) [2017] 164 ITD 697 (Ahmedabad ITAT)
Director of Income Tax (International Taxation) vs Mark & Spencer Reliance India (P) Ltd [TS-178-HC-2017(BOM)] (Bombay HC)
Owens Corning Insulating Systems Canada LP vs DCIT, International Taxation ITA No 461 (Mum) of 2022 (Mumbai ITAT)
Morgan Stanley International Incorporated vs DDIT (International Taxation) ITA No 5985 (Mum) of 2012 (Mumbai ITAT)
AT & T Communication Services (India) P Ltd vs DCIT [TS-644-ITAT-2018(DEL)] (Delhi ITAT)
Yamazen Machinery and Tools India (P) Ltd vs ACIT [2023] 200 ITD 205 (Delhi ITAT)
DDIT vs Yum! Restaurants (Asia) Pte Ltd [2020] 81 ITR(T) 440 (Delhi ITAT)
TPF Getinsa Euroestudios S L vs ACIT, International Taxation ITA No 2400 (Delhi) of 2022 (Delhi ITAT)
DIT (International Taxation) vs Abbey Business Services (India) (P) Ltd [2020] ITA No 214 of 2014 (Karnataka HC)
Flipkart Internet (P) Ltd vs DCIT (International Taxation) [2022] 448 ITR 268 (Karnataka HC)
Google LLC vs JCIT (OSD)/ DCIT (IT) [2023] IT(IT)A Nos 167 (Bang) OF 2021 and 688 (Bang) of 2022 (Bangalore ITAT)
Toyota Boshoku Automotive India (P) Ltd vs DCIT, LTU [2022] IT(TP)A Nos 1646 (Bang) of 2017 & 2586 (Bang) of 2019 (Bang ITAT)
Goldman Sachs Services (P) Ltd vs DCIT [2022] 99 ITR(T) 104 (Bangalore ITAT)
Serco India Private Limited vs DCIT [TS-363-ITAT-2023(DEL)]
Juniper Networks Inc vs ITO (International Taxation) [TS-242-ITAT-2023(Bang)] (Bangalore ITAT)
Faurecia Automotive Holding vs DCIT, International Taxation [TS-417-ITAT-2019(PUN)] (Pune ITAT)
John Deere India (P) Ltd vs DDIT (International Taxation) [2019] 70 ITR(T) 73 (Pune ITAT)
Secondment of employees -
Unfavourable Rulings
General Motors Overseas Corporation vs ACIT/ DDIT (International Tax) [TS-134-ITAT-2020(Mum)] (Mumbai ITAT)
Centrica India Offshore (P) Ltd vs CIT [2014] 364 ITR 336 (Delhi HC)
Food World Supermarkets Ltd vs DDIT (International Taxation) [2015] 174 TTJ 859 (Bangalore ITAT)
Flughafen Zurich AG vs DDIT [2017] IT(IT)A Nos 1525 (Bang) of 2010, 1437 & 1438 (Bang) of 2013 & 244 (Bang) of 2015 (Bang ITAT)
Nippon Paint (India) Pvt Ltd vs DCIT (International Taxation) [TS-171-2019(CHNY)] (Chennai ITAT)

28. `
Country
Status (individual,
company, firm etc)
of the assessee
Nationality/ Country of
incorporation or registration
Assessee's tax identification
number/ unique number in the
Country of residence
Period for which the
residential status is
applicable
Address of the
assessee in the
country or territory
outside India
Germany Implied Implied Yes Yes Yes
Singapore1 Implied Implied Yes Yes Yes
Australia Implied Implied Yes Yes Yes
USA1 Yes Implied Yes Yes Not Available
Sweden Implied Implied Yes Yes Yes
Malaysia Implied Implied Yes Yes Yes
Brazil Implied Implied Yes Yes Yes
Spain Implied Implied Yes Not Available Yes
UK1 Implied Implied Yes Not Specified Yes
1Screenshot of sample TRC available in the ensuing slide
Annexure 2: TRC

29. `
Certifies
residency as on a
date and not for a
specific period
Status of the entity
implied basis the
name
1
2
Status of the
entity implied
basis the name
1
Period of
residency
specified
2
United Kingdom United States of America Singapore
Status of the
entity specifically
mentioned
Address of the entity
not available
1
3
Period of residency
specified
2
Address available
3
Address
available
3
Annexure 2: Sample TRCs

30. `
Annexure 3: Sample Tax Transparency Report
Biocon HUL
JSW Cyient
Vedanta Tata Steel Cipla Welspun

31. `
Annexure 4: Assessment readiness - Snippet of key findings in the report
Key Findings
Assessment Preparedness
Key Matrix
Chances of
scrutiny
High
Level of
documentation Limited
Sl No Documentation Status Recommendation Importance
1 TDS rationalisation working
✓ The tax rationalisation workings maintained by Company should provide
expense head wise comparison of TDS returns vis-à-vis SPL.
2 Reasons for not deducting tax on certain transactions
✓
3 Where TDS has not been deducted when it ought to have been deducted,
details of disallowance under Section 40(a)(i) and Section 40(a)(ia) of IT Act,
as the case may be
✓
Description Observations Magnitude
Withholding tax
rationalisation
▪ Company has maintained TDS rationalisation workings and our key
observations on same are provided below:
– Difference in total amount on which tax is deducted as reported in Form
26Q vis-à-vis total amount of Form 26Q items considered in TDS
rationalisation workings
– Expense head wise details have not been provided against list of
vendors to enable mapping with SPL
– Reasons for non deduction of TDS on certain line items not provided in
the workings
– For few vendors, amount debited to SPL is higher than amount on
which TDS is done. Unless substantiated, it could be inferred that no
withholding has been done on differential
INR____
(ie 30 percent of INR ___)
AY 20XX-XX FY 20XX-XX

32. Glossary

33. `
Glossary
Term Abbreviation
AI Artificial Intelligence
ADVAIT Advanced Analytics in GST
AO Assessing Officer
AY Assessment Year
BEPS Base Erosion Profit Sharing
BIFA
Business Intelligence and Fraud
Analytics
CbCR Country by Country Reporting
CBDT Central Board of Direct Taxes
CBEC Central Board of Excise and Customs
Co Company
DSC Digital Signature Certificate
DTAA or
Tax Treaty
Double Taxation Avoidance Agreement
ECO E-Commerce Operator
EQ Levy Equalisation Levy
ESOP Employee Stock Option Plans
F Co Foreign Company
FA Finance Act
FDI Foreign Direct Investment
Term Abbreviation
FEMA Foreign Exchange Management Act, 1999
FoC Free of Cost
FTC Foreign Tax Credit
FTS Fee for Technical Services
FY Financial Year
GST Goods and Services Tax
HC High Court
I Co Indian Company
INR Indian Rupee
IT Act or
the Act
Income Tax Act, 1961
ITAT Income Tax Appellate Tribunal
KYC Know Your Customer
LRS Liberalised Remittance Scheme
MCA Ministry of Corporate Affairs
NR Non-Resident
OGE Order Giving Effect
ODI Overseas Direct Investment
OECD
The Organization for Economic Cooperation
and Development
OIDAR
Online Information Database Access and
Retrieval services
Term Abbreviation
PAN Permanent Account Number
ROI Return of Income
SC Supreme Court
SFT Statement of Financial Transactions
SPL Statement of Profit and Loss
SPOC Single Point of Contact
TCS Tax Collected at Source
TDS Tax Deducted at Source
TIN Tax Identification Number
TP Transfer pricing
TRC Tax Residency Certificate
TTR Tax Transparency Report
wef With Effect From

34. Thank You
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Sandeep Jhunjhunwala
Sandeep specializes in the areas of corporate international tax
with expertise in strategic transaction advisory, cross-border tax
structuring, controversy management and deals assistance. He
also works closely with regulators and policy formulators, in
providing inputs to aid in the development of new regulations. He
has worked on a number of leading multi-national companies in
Information Technology, Real Estate, Healthcare and
Pharmaceuticals, Transportation and Logistics and e-commerce
sectors.
Sandeep has been an eminent speaker and panelist on tax and
regulatory matters at various forums. He is a regular columnist
and has written several articles and contributed podcasts on tax
and regulatory matters. He has also authored a book on Real
Estate (Regulation and Development) Act, titled Decoding
RERA.
Partner
Bengaluru@nangia-andersen.com
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