The document discusses emerging trends in India's finance, tax, and regulatory framework. It outlines macroeconomic factors like GDP growth and improvements to ease of doing business. Key government initiatives promoting digitization, tax reform through GST, a new insolvency code, and liberalized FDI are summarized. Changes aligning tax and regulatory practices with international standards like the OECD's BEPS project are also covered at a high-level.

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EMERGING TRENDS

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India : Emerging trends
Emerging Trends in Finance, Tax and Regulatory Framework
11 May 2018
EMERGING TRENDS

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MACRO PERSPECTIVE
 Realignment of global economy – focus on India
 GDP growth of 7-7.5% in last three years
– Focus on certain key sectors and initiatives
 Ease of doing business or lack of it – determinantal to investments
– India moves up 30 spots in ease of doing business (130th to 100th spot): World Bank’s report
– Alignment with international best practices
 Tax structure remains complex

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LANDMARK INITIATIVES
Digitisation drive
 Processes being run online
 Efforts being made to continuously digitise the economy
Historic tax reform
 GST turned entire India into one common market
 ‘Indian Customs Single Window Project’ to facilitate trade put in place
 Start-ups within INR10 cr. share capital threshold, exempted from angel tax
New insolvency code
 Consolidation of regulations regarding insolvency into a single legislation
 Promotes entrepreneurship, investors confidence and increases availability of credit, by strengthening procedures

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LANDMARK INITIATIVES
Further easing of FDI policy
 FDI liberalization in 87 policy areas across 21 sectors is paying off
 Most sectors now are under automatic route
 Sectoral caps across major sectors including defence, aviation, single brand retail trading increased to 100%
Institutional reforms
 Jan Dhan Yojana - making banking, remittance, and insurance services available to every Indian at affordable cost
 Aadhaar biometric identification
Infrastructure push
 New railway lines constructed
 5 new industrial corridors coming up
 Rural India electrified

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LANDMARK INITIATIVES
Renewable energy
 India is World #4 in terms of installed capacity to harness power from wind
 World #6 in terms of installed solar power capacity
 Operations to enhance wind power, solar power, biomass power and small hydro power capabilities put in place
Unearthing black money
 Demonetisation
 Increased focus on tax compliance
 Widening of tax net

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INDIAN TAX AND REGULATORY ENVIRONMENT
Indian tax and regulatory system – A myriad of complex regulations
 Key challenges:
– Multiple compliances
– Time consuming processes
– Little coherence with International tax practices
– Long drawn litigations
 Latest trends suggests government working on improvement in all areas

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Ease of doing business in India
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CORPORATE LAW
 One form - “SPICE”, for simplified Incorporation procedure under (including PAN/TAN)
 Name reservation process now online - “RUN” (Reserve Unique Name)
 Process of incorporation to be completed within 20 days
 No Minimum Share capital
 Earlier restriction on participation of directors in Board meetings through video conferencing eased
 Fast Track Merger put in place - Holding Co and WoS or two or more small companies
 WoS can conduct their EGM outside India which was initially restricted (yet to be notified)

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LIBERALIZATION IN FOREIGN EXCHANGE POLICY
Single brand retail trading
 100% FDI under the automatic route permitted
 Foreign companies given 5 years to comply with the local sourcing requirements
 New definition of ‘incremental sourcing’
FDI in Investment/ Holding cos.
 Foreign investment into an Indian company, engaged only in the activity of investing in the capital of other Indian
companies / limited liability partnerships and in ‘Core Investing Companies’ has been liberalized
 Companies regulated by financial sector regulator: 100% FDI under the automatic route
 Companies not regulated/ part regulated by financial sector regulator: 100% FDI under the approval route
Changes in ECB scenario
 End use prescriptions norms altered: Now common negative list for all tracks (with few exceptions)
 Expansion of eligible borrowers list

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DIGITIZATION IN TAX MATTERS
 Initiation of e-assessment proceedings
– Assessment to be done in electronic mode;
– Endeavour to make the process faceless, nameless and paperless
 Selection of majority cases for scrutiny done primarily through Computer Aided Scrutiny Selection (CASS);
– Manual selection for scrutiny limited
 Filings are done online
 Risk based case selection for assessments
 E-Biz portal: One-stop clearance platform for investment proposals, Government to business portal put in place

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CERTAINTY IN TAX POSITIONS
TRANSFER PRICING
Safe Harbour Rules
 Reduction in litigations and certainty w.r.t. eligible transactions
 Revised safe harbour margins
 Introduction of low value adding intra group services
Advance Pricing Agreement
 Certainty on transfer pricing matters
 Determination of arm's length price of future intercompany transactions (Unilateral, Bilateral and Multilateral)
 Valid for a maximum period of 5 years and previous 4 years under roll-back provisions

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CERTAINTY IN TAX POSITIONS
INTERNATIONAL TAX
Authority for Advance Rulings
 Applicable for both residents and non residents
 Determination whether transaction lacks commercial substance (inter play with GAAR provisions)
 Time limit – AAR pronounce ruling within 6 months from receipt of application
Mutual Agreement Procedure
 To give clarity for issues giving arise to double taxation
 Negotiation process between competent authorities of countries under MAP

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Coherence with International Standards
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BASE EROSION AND PROFIT SHIFTING
 BEPS Project by OECD – Address concerns of existing taxation principles failing to keep pace with evolving business
models
 Extremely relevant for India - Action plans dealing with treaty abuse, PE, intangibles, digital economy, and TP
documentation and CBCR
 India - at the forefront in incorporating the suggested measures in its domestic tax law
Details of the Action Plans from an India perspective
 Equalization Levy (part of Action Plan 1) – Indian version of google tax
– Taxation of digital transaction
– Applicable at 6% on gross consideration payable for a online advertisement/ digital advertising space
 Significant Economic Presence (part of Action Plan 1)
– Taxing principles based on physical presence are no longer true measure
– SEP - addressing the tax challenges for taxing digital transactions having no physical nexus with the source country
– Includes sale of goods, services or property, including provision of data download or software; soliciting of business activities,
interacting with certain number of users in India through digital means

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BASE EROSION AND PROFIT SHIFTING (BEPS)
 Section 94B (Part of Action Plan 4) – Indian version of thin capitalization rule
– Interest incurred by an Indian co to its related party - restricted to 30 percent of its EBITDA
– Threshold – INR 1 crore
 Patent Box Regime (Part of Action Plan 5 (dealing with harmful tax practices)
– Additional incentive for companies to retain and develop innovative patented products
– Reduced rate of 10% tax on royalty income from patents developed and registered in India
 Introduction of GAAR (Action Plan 6 – prevent treaty abuse)
– Applies to arrangements lacking commercial substance
 Amendment in TP provisions (Action Plan 8-10, and 13)
– Intangibles, Risks and capital & High-risk transactions – conceptually followed by India
– TP documentation & CbC reporting - Introduced in Finance Act 2016 in line with recommendations of Action Plan 13
– Low Value Intra group services introduced in Safe Harbor Rules

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BASE EROSION AND PROFIT SHIFTING (BEPS)
 Action Plan 15 – Multilateral Instruments
– MLI incorporates treaty related measures identified as part of final BEPS measures in relation to
– India signatory to MLI
– Covered Tax agreements – 93 tax treaties entered into by India
– MLI incorporates treaty related measures related to:
• Neutralizing the effects of hybrid mismatch arrangements (Action 2)
• Preventing the granting of Treaty benefits in inappropriate circumstances i.e. Treaty abuse (Action 6)
• Preventing the artificial avoidance of permanent establishment status (Action 7)
• Making dispute resolution mechanism more effective (Action 14)
 Recent Amendment:
– Scope of ‘Business Connection’ as provided in the present law aligned in view of BEPS and MLI
– Widened to include agents habitually playing a principal role in conclusion of contract

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GOODS AND SERVICES TAX (GST)
 E - Way bill : Permit required for transferring goods from one place to other place
 Reverse charge on purchase from unregistered dealers have been deferred till 30th June 2018
 Practically facing difficulties in GST self assessments with department due to unavailability of annual return form and
other forms
 Blockage of GST refunds unless audit is completed and annual return is filed
 No provisional credit where no return is filed by the vendor
 To promote digital transactions for B2C – 2% rebate on GST rate subject to Rs. 100 per transaction
 No option available for revision of returns till date
 Single consolidated return in place of multiple returns proposed

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INDIAN ACCOUNTING STANDARDS (IND AS)
 Monumental change in the financial reporting landscape in India
 Applicability: 1 April 2016 onwards, Ind AS, converged with IFRS, a new accounting norm for companies
 Adoption (Companies other than Banking, Insurance and NBFCs):
– Voluntary Adoption: On or after April 1, 2015
– Mandatory Adoption: On or after April 1, 2016 in 2 Phases
Phase 1: April 1, 2016 onwards
– Companies listed/ in process of listing on any
stock exchange and having net worth of INR
500 Cr or more; and
– Unlisted companies having net worth of INR
500 Cr or more
– All other companies listed/ in process of listing
on any stock exchange; and
– Unlisted companies having Net worth INR 250
Cr or more
Holding, Subsidiary, Joint venture or associate companies of above companies.
Net Worth would be considered as on March 31, 2014 or latest audited standalone financial statement thereafter
Phase 2: April 1, 2017 onwards

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INDIAN ACCOUNTING STANDARDS (IND AS)
 Make financial statements easier to compare
across countries and competitors
 Convergence with IFRS and not pure adoption
(with certain carve-outs)
 Comparative figures to be presented as per Ind
AS
 Conversion journey extends beyond accounting to
process, people, controls, and technology
 Increased stress on disclosure (e.g. risk relating
to financial instruments, fair value, operating
segments, significant assumptions/estimates,
etc.)
Greater use of
Fair value
Substance over
form
Time value of
money
More usage of
Judgement and
Estimation
Detailed guidance
on each
Standards
CONCEPTUAL
DIFFERENCES

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INDIAN ACCOUNTING STANDARDS (IND AS) - POTENTIAL IMPACT
Potential Impact of IND AS
 General
– If extended payment terms reflect significant financing component, present its effects in income statement
– Recognise revenue from intellectual property licensing only on customer’s subsequent sales
– Fair valuation of consideration (time value of money, customer incentive schemes and trade schemes)
 Infrastructure sector
– Service concession arrangements
– Revenue recognition
 Manufacturing Sector
– Gross presentation of revenue including GST, customs and other charges; and
– Deferral of recognition of revenue (dispatch vs. delivery, multiple deliverable arrangements, linked transactions, sales on sale/return
basis): Adjustments on account for trade schemes and customer incentives presentation
 Service Sector
– Estimations of standalone selling price where goods and services are sold in composite manner

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Other evolving areas
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INSOLVENCY AND BANKRUPTCY CODE, 2016 (IBC)
 One of the largest reform in banking sector
 IBC seeks to consolidate existing framework by creating single law for insolvency and bankruptcy
 Aims for the following:
– Resolve insolvencies in a time bound manner (within 270/180 days)
– Transfer control from existing promoters to lenders
– Resolve the confusions caused by earlier complex regulatory and judicial environment
 ARCs created to manage and recover NPAs from Banking system
 Potential opportunity for investment in Indian distressed assets

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INCOME COMPUTATION AND DISCLOSURE STANDARDS
 Applicable for computation of income chargeable under the head "Profits and gains of business or profession" or
"Income from other sources“;
 Not meant for maintenance of books of account, which shall be done as per applicable AS/Ind AS;
 10 ICDS notified with effect from AY 2017-18;
 Applicable to all taxpayers following mercantile system of accounting (except individual or HUF whose turnover/gross
receipts does not exceed Rs. 1 Crore (in case of business) or whose gross receipts does not exceeds Rs. 50 Lakhs);
 Provisions of Act to prevail in case of conflict with ICDSs;
 Provisions of ICDS to prevail over inconsistent judicial precedents.

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CLOSING REMARKS
Current trends
 Path to reforms
 Strong focus on ease of doing business
 Creating administrative infrastructure for managing growth
Things to watch out for
 Elections in 2019 – key event
 Political deadlocks – bottleneck
 Currency

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