ppt on international taxation

1. PRESENTED BY

2. What is International taxation?
 International taxation refers to tax levied on the cross –
border transaction.
 Studying Non Resident provisions in a domestic law.
 Studying two domestic laws of two different countries.
 Concerned with both Direct Taxes and Indirect Taxes.

3. Why International Taxation?
Globalization
To Define
Taxing Rights
To Avoid
Double
Taxation
Conflicts

4. Purpose of International Taxation
Taxing Residents
World Wide
Income
Taxing Non
Residents
National Income

5. CONTENT
1. Transfer Pricing
2. Objective behind Transfer Pricing
3. Income/Expense having regard to ALP
a)Income/Expense to be computed as per ALP
b)Allocation/Apportionment of common cost as per ALP
c)Provision of ALP shall not apply when ALP decrease
income or increase losses.
4. International Transaction
5. Associate Enterprises
6. Deemed Associate Enterprises
7. Methods to compute ALP

6. OBJECTIVE BEHIND TRANFER
PRICING
Different countries have different rates.
Enable Multinational enterprises to allocate their profit in
least tax jurisdiction.
Affect the growth of our country.

7. T Limited
Indian
company
M Limited
Japan Company
Service
Unrelated
party
¥8000
a.¥11000
or
b.¥6000
Exchange rate is ¥1=INR49
The income of T Limited is INR 76 lakhs
before adjusting above transaction
Find out the Net income of M Limited.
EXAMPLE-
Subsidiary

8. Situation A – When payment to M limited ¥11000
ALP= ¥8000*49=INR392000
Income=INR7600000
(-)INR392000
Profit = INR7208000
Income =INR7600000
(-) ¥11000*49=INR539000
Profit=INR7061000
(+)downfall in profit=INR147000
INR7208000
Situation B – When payment to M limited ¥6000
ALP= ¥8000*49=INR392000
Income=INR7600000
(-)INR392000
Profit = INR7208000
Income =INR7600000
(-) ¥6000*49=INR294000
Profit=INR7306000
Decision- Here the concept of ALP shall not applicable
because there a decrease in income after applying ALP.

9. Income/Expense having regard to ALP
1. Income/Expense to be computed as per ALP
 Income from International transaction shall be
computed having regard to ALP.

10. 2.Allocation/Apportionment of
common cost as per ALP
Allocation or Apportionment of common cost or expense
shall be determined having regard to ALP.

11. 3. Provision of ALP shall not apply
when ALP decrease income or
increase losses.
If after applying ALP there is a decrease in
income or increase losses then ALP shall not be
applicable.

12. International Transaction
As per section 92B, International transaction means a
transaction entered into between two or more associate
enterprise(at least one of which is non resident) for
purchase/sale/lease of tangible/intangible property or
provision of services or lending borrowing money.

13. Associate Enterprise
As per section 92A Associate enterprise mean an
enterprise which participates directly or indirectly, in
management or control of other enterprise.
Further, if one or more person participate, directly or
indirectly, in the management or control of two enterprise,
those enterprise are associated enterprise

14. Deemed Associate Enterprises
1.In first instance A Ltd holding more than 26 % in B Ltd – so A Ltd & B Ltd are
Aes
2.In the second instance A Ltd is holding 40 % in B which in turn holds 50 % in C
as such arithmetically A holding only 20 % in C Ltd but indirectly through
intermediary it owns more than 26 % in C Ltd. So A & C will be AEs

15. 1.A Ltd holding directly more than 26% in B Ltd & C Ltd.
Though there is no holding inter-se between B Ltd & C Ltd,
by definition A Ltd, B Ltd, & C Ltd are AEs

16. 1.Total book value of assets is 100 lakhs – 51 % is 51 lakhs – loan
advanced is more than 51% of the book value . A Ltd and B Ltd
are AEs

17. 1.B Ltd has given guarantees more than 10% of the total
borrowings of A Ltd . A Ltd and B Ltd are AEs

18. 1.A Ltd exercises control over B Ltd by virtue of power to
appoint more than half of the board of directors/members of
B Ltd or appoints one or more executive member of the
governing board of B Ltd

19. 1. Since Mr.X has appointed more than half of the directors of
A Ltd and two executive directors of B Ltd, A Ltd and B Ltd
are deemed to be AEs.

20. 1.Since A Ltd provides BLtd with technical know-how for
the manufacture of goods , A Ltd and B Ltd are AEs

21. 1.More than 90% of raw material required by A Ltd are
purchased from B Ltd . When A Ltd. sells goods to C Ltd the
price is influenced by B Ltd. Then, A Ltd & B Ltd are AEs.

22. 1.A Ltd sells goods to B Ltd or person specified by B Ltd. Both
cases prices and other conditions are influenced by B Ltd. Then
A Ltd & B Ltd are AEs.

23. 1.A Ltd controlled by Mr.P and B Ltd is controlled either by
Mr.P or Mr. R or jointly by Mr.P and Mr.R then A Ltd and
B Ltd as AEs.

24. 1. A Ltd is controlled by P- HUF and B Ltd is controlled by
Mr.R – a member of HUF or a relative of such member
then A Ltd and B Ltd as AEs.

25. 1.A firm hold not less than 10% in B firm A & B are AEs.

26. Methods to compute ALP
1. Comparable Uncontrolled price method
Associate
enterprise
USA
Assessee
Canada
AustraliaWithout insurance
freight=250
Without warranty=90
Export
INR 1000
per unit
Export
Export
INR 1500 per unit with
insurance freight with
warranty
ALP
INR 1500 per unit
(-) insurance 250
(-) warranty 90
ALP =1160

27. 2. RESALE PRICE METHOD
Associate
Enterprises
USA
Assessee
3rd party(unrelated)
110 lakhs
Purchase
(+) Freight
(+) Insurance
(+) Custom
(+) GP Margin
= Sale Price
Purchase
100
lakhs
Resale

28. 3. COST PLUS METHOD
MARKET Assessee
Associate
Enterprises
Cost SALE
Manipulate
Direct
cost
Indirect
Cost
Not manipulated
Non
Associate

29. 4.PROFIT SPLIT METHOD
Step1- Determine the net profit of all associate enterprise
engaged in international transaction.
Step2- Evaluate the relative contribution made by each of
them with regard to
a) Function performed
b) Assets employed
c) Risk assumed
Step3-Split the combined net profit in relation to relative
net contribution.
Step4- The profit so arrived is taken to arrive at ALP in
relation to international transaction.

30. 5.Transaction Net Margin Method
Margin
Net
profit
Associate
International
Transaction
Uncontrolled
transaction
Comparable

31. Step1- Determine the net profit margin realise by the
enterprises from an international transaction entered into
with associated enterprise having regard with cost incurred
or sale or asset employed or any other base.
Step2-Determine the net profit margin realise by the
enterprise from a comparable uncontrolled transaction
having regard with same base.
Step3-The net profit margin referred in step2 arising from
comparable controlled transaction is adjusted if there any
difference between international transaction and
comparable uncontrolled transaction.
Step4-ALP=cost in international transaction+ net margin
computed in step3.

32. ROLE OF CMA
Advisory
Roll
Determining
Arms length
price
Investment
Consultancy