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Au cours des six derniers mois, le gouvernement indien a multiplié les initiatives pour relancer la croissance. Par ailleurs plusieurs développements juridiques et fiscaux sont susceptibles d'affecter les investissements en Inde des entreprises françaises.
Etude PwC Réussir vos investissements en Inde (2013)
1. www.pwc.in
Evolving and Dynamic tax and regulatory
scenario in India
Ketan Dalal, Sandeep Chaufla and Prerna
Mehndiratta
Paris, 28 November 2013
2. Presentation structure
Macro economic and tax environment
Doing business in India
Transfer pricing
Mergers and Acquisitions
Indirect taxes
Key take-aways
Evolving tax and regulatory scenario in India
PwC
November 2013
Slide 2
3. Macro economic and tax environment
Evolving tax and regulatory scenario in India
PwC
November 2013
Slide 3
4. Economic environment
GDP Growth
CY 2013
CY 2014
3.8%
China
India
5.1%
4.5%
Emerging and
developing economies
Advanced economies
Goldman Sachs upgraded India's rating
Foreign exchange volatility; attaining
stability now
Inflation to average around 6%
•
Populist measures as country approaches
the general elections
5.1%
1.2
%
•
•
7.2%
Economy slowed down in CY 13; picking up
pace again
•
7.6%
•
2.0
%
Source: World Economic Outlook , The IMF
Evolving tax and regulatory scenario in India
PwC
November 2013
Slide 4
5. Tax environment – the big picture
• MNCs high on radar
− Higher visibility and scrutiny of cross border transactions
− Withholding tax defaults closely audited; prosecution proceedings
− Cyprus notified as a non-co-operative jurisdiction
• Yet, several moves towards a responsive and less adversarial tax regime
− Soul searching on retrospective amendments
− GAAR : legislative provisions deferred
− Tax Administrative Reforms Commission set up
− DTC expected to simplify tax regime
− Safe harbour rules introduced
− APAs : pragmatic approach, initial response encouraging
Evolving tax and regulatory scenario in India
PwC
November 2013
Slide 5
6. Legislative GAAR deferred
• Implementation deferred by two years; though judicial GAAR exists even today!
• Applies to tax benefit obtained on/after April 1, 2015 from arrangements entered on
any date. Overrides tax treaty.
• Rules notified in Sept-GAAR inter-alia not to apply :
- if tax benefit less than INR 30 mn (Euro 350,000)
- on investments made before 30 August 2010
• GAAR Approving Panel to include independent members
• Commercial rationale is key safeguard against GAAR
• Advance ruling allowed for both residents and non-residents
Evolving tax and regulatory scenario in India
PwC
November 2013
Slide 6
7. Companies Act, 2013
• Several sections notified - expected to be fully notified by March 2014
• Key highlights
- Related party transactions ring-fenced
- Stricter regime for private companies
-
Auditors rotation
-
FY: 31 March
- Inter corporate loans/ investments restricted
- Duties and liabilities of Directors/ KMP widened
- Restriction on layers of investment companies
- Fast track mergers
- Cross border mergers concept introduced
Evolving tax and regulatory scenario in India
PwC
November 2013
Slide 7
8. LLPs vs. Companies
• Permitted in India since April, 2009
About LLPs • Much less onerous compliances compared to requirements under Companies Act
LLPs and
FDI
LLPs and
Tax
• FDI in LLPs allowed with approval from FIPB in sectors where 100% FDI is allowed
through Automatic route (see next slide)
• LLPs with FDI cannot make downstream investment/ raise foreign currency loans
• No Dividend Distribution Tax
• Less onerous AMT applies, not MAT that applies to Companies
• More flexibility in structuring LLP agreement
AMT applies to
taxable income as
adjusted by specified
deductions; not to
book profits
Evolving tax and regulatory position in India
PwC
AMT does not apply
to tax-exempt longterm capital gains
November 2013
Slide 8
9. Conversion to LLPs
Who can convert
Is conversion tax-free?
• Only firms, private and unlisted companies
• Exemption for very small companies converting
• However, there are potential conversion options
with limited tax exposure
Merger/ Demerger into Newco
followed by conversion
Graded migration
Transfer business to LLP at
Book Value
Evolving tax and regulatory position in India
PwC
November 2013
Slide 9
10. Key regulatory changes
Relaxation of ECB norms
• Definition of infrastructure
widened
• Revision in maximum limits
• Permitted for general
Liberalisation of SEZ
framework
• Lower minimum land area
FDI/ ODI
• Overseas investment limits
requirement for multi-
for Indian Companies
product & sector-specific SEZ
reduced from 400% to
• No minimum area
corporate purpose under
requirement for IT /ITeS
approval route (minimum
100% of net worth
• Graded scale for minimum
average maturity of 7 years)
land area criteria, sector
broad-banding, land vacancy
issues & exit policy for SEZ
units
Evolving tax and regulatory scenario in India
PwC
November 2013
Slide 10
11. Outlook on Tax Treaties
• TRC required as evidence of residential status to qualify for treaty benefit
- Specified particulars to be furnished to the IRA if not provided in the TRC
- Judiciary consistently upholding eligibility for treaty relief basis TRCs
• Mauritius treaty
- has prescribed conditions for creation of “substance” – effective January 1,
2015
- renegotiation of treaty expected – LoB likely to be introduced
• Revenue remains aggressive in its stand– substance over form applied
• Some unilateral steps by India to override treaty benefits
Evolving tax and regulatory scenario in India
PwC
November 2013
Slide 11
12. Doing business in India
Evolving tax and regulatory scenario in India
PwC
November 2013
Slide 12
13. Overview of Tax Rates
subject to tax treaties
S. No.
Particulars
Rates *(%)
1
Domestic company
33.99
2
Foreign company-branch, project /other PE
43.26
3
MAT
20.961
4
DDT
16.995
5
BBT
22.66
* Including all surcharges and cesses; highest slab rates
Buyback Tax
• Shareholders are exempt (tax borne by company buying back shares)
• Not linked to availability of accumulated profits
• Distributed income = consideration paid less amount received on issue
• Credit of BBT in home country may not be available
Evolving tax and regulatory position in India
PwC
November 2013
Slide 13
14. Tax holidays and incentives
Tax holiday/ incentive
Period of exemption
Power generation
• 100% of profits and gains
• 10 years in a block of 15 years
• Sunset –commence operations March 31, 2014
SEZ
• 100% of export profits - 5 years
• 50% of export profits - 5 years
• 50% of export profits, subject to transfer to reserves- 5
years
• DTC expected to introduce sunset clause
• Exemption from MAT withdrawn
In – house research
200% deduction - extended till 31st March, 2017
Approval from competent authority required
Evolving tax and regulatory scenario in India
PwC
November 2013
Slide 14
15. PE risk assessment
Technical Threshold / Taxpayer Focus
• PE challenges on the increase
• Tax due, penalties and interest
• Filing requirements
• Prior years scenario
• Knock-on impact for other taxes
(Payroll, VAT / service tax)
• Knock-on effect for the same type of
tax (withholding tax, creditable taxes,
etc)
Service
PE
Fixed place
of business
PE
PE rule
Evolving tax and regulatory scenario in India
PwC
Agency PE
PE strategy critical;
address the quantum!
November 2013
Slide 15
16. Adhoc attribution/ recent judicial trends
• Adhoc attribution by the Revenue
Some judicial analysis on profit attribution
Particulars
Profit Attribution
Taxability of offshore supplies where PE performed
certain activities
20% of proportionate profits
based on global profits
Taxability of offshore supplies where PE performed
marketing activities
35% of profit (50%
manufacturing, 15% R&D)
Evolving tax and regulatory scenario in India
PwC
November 2013
Slide 16
17. Engineering, procurement, construction contracts
• Typical scopes of work:
- Offshore supply, offshore services
- Offshore supply, onshore services
• Typical challenges:
- Consortium contract – AOP exposure
- Project office of the Foreign Co for onshore scope
- Constitution of PE of foreign company; taxability of offshore supplies
• Safeguards:
- Bidding documents to reflect the contractual understanding
- Separate contracts for distinct scopes of work, remuneration
- Coordination agreement
- AAR for predetermination of tax liability?
Evolving tax and regulatory scenario in India
PwC
November 2013
Slide 17
18. India inbound expat assignment structures
• Varying degrees of PE exposure: Morgan Stanley, Verizon
• Typical models:
- Legal employment in India
- Dual employment
- Secondment
- Manpower supply arrangements
• Foreign Exchange - Restrictions on payment of salary in bank account outside India
•
Tax issues on reimbursement of salary cost
• Social security contributions in India
• Service tax on cross charges
Documentation is key
Evolving tax and regulatory scenario in India
PwC
November 2013
Slide 18
19. India-France treaty – certain special dimensions
• PE clause
- No reference to supervision activity; hence slightly narrow in EPC context.
- Vis-à-vis agency PE, reference to ‘concludes contracts’ not extended to ‘secures
orders’.
- Attribution of profits to PE- restricted/ clarified by protocol to the treaty
• MFN clause FTS/ royalty; restricts scope or rate – India-Portugal/ India-Finland tax
treaties
• Royalties includes equipment trigger; withholding rate is 10% on gross for all royalties
• Capital gains (other than on items specifically covered) taxable only in country of
residence
•
Loans endorsed/ extended by COFACE exempt
• Bilateral APA in absence of sub clause (2) in Associated Enterprise article?
Evolving tax and regulatory scenario in India
PwC
November 2013
Slide 19
20. Dispute resolution - overview
• Strategy for dispute resolution critic – proactive, not reactive
• Some dimensions:
- Alternative forums for dispute resolution
- Prevention better than cure (AARs/ APAs)
- Recurring vs one time
- Payment of demand
Evolving tax and regulatory scenario in India
PwC
November 2013
Slide 20
21. High profile litigations: indirect transfers/ equity
infusion
Vodafone
Indirect transfer sought
to be subjected to WHT
Shell
F Co 1
Capital infused into
Indian 100% sub
Sale
Supreme Court decision
favourable
F Co 2
Capital Infusion
arguably
“undervalued”
“Undervaluation"
sought to be taxed
as income!
Retrospective
amendment –has been
challenged
I Co
No action to collect tax
Expert Committee to
review law
Committee has criticised
retro amendment
Relief for Indirect
transfers
Evolving tax and regulatory position in India
PwC
November 2013
Slide 21
22. Indirect transfers: uncertainty continues
• Term ‘substantially’ not defined
• Term ‘substantial’ is defined in the Oxford Dictionary to mean ‘of considerable
importance, size, or worth’
• Issue arises as to whether substantial is :
- 26%
- 51%
- ~100%
• No legislative clarity at present
• No exemption on intra- group transactions / restructurings
• No minimum threshold specified
• Timing of clarity could be impacted by Vodafone “settlement”
Evolving tax and regulatory scenario in India
PwC
November 2013
Slide 22
24. The landscape
• Greater focus on intercompany payments/ service arrangement
• High on agenda - royalty payouts, management charges closely audited
• Intangibles is a key area of focus:
− Profits from intangibles should not be divorced from value creation
− Special measures for transfer of hard-to-value intangibles
• Robust documentation required to demonstrate:
− Benefit received
− Arm’s length price
Evolving tax and regulatory scenario in India
PwC
November 2013
Slide 24
25. Transfer Pricing Audit Environment in India
Policy
Environment
Legal
Environment
Practical
Challenges
• Focus on establishment of a
non-adversarial tax regime
• APAs gathering momentum
- 146 applications filed
• TP adjustments in excess of
US$ 28 billion over 8 audit
cycles
• Rangachary committee for
recommendations on safe
harbours
• Norms for development
centers to qualify as
contract R&D centers
• TP adjustments worth US$
12 billion in FY 08-09
• Shome committee for tax
reforms
• Safe harbor regime for IT,
ITeS, R&D services
• More than 3,200 cases
audited - Adjustments in
over 50% of cases
• Balanced approach of the
Tribunal
Evolving tax and regulatory scenario in India
PwC
• High adjustments for IT,
BPO & KPO
November 2013
Slide 25
26. India – Safe Harbour Rules
• Effective from FY 2012-13 and subsequent 4 years.
• Rates prescribed are tabulated below:
Eligible
International
transaction
Provision of ITes
Rate for international
transaction
Rate subject to Limits
Turnover <= INR 5 bn
(Euro 58.9 Mn)
22%
Evolving tax and regulatory position in India
PwC
20%
Turnover > INR 5 bn (Euro
58.9 Mn)
November 2013
Slide 26
27. India – APA scenario
Types of APA
• Unilateral, bilateral and multilateral APAs allowed
• Allows flexibility during the process
Term
• Up to five years
• Roll-back not specifically provided for
APA team
• Besides revenue officials, the APA team to include
experts in economics, statistics, law, etc.
Evolving tax and regulatory position in India
PwC
November 2013
Slide 27
29. Acquisition financing
Funding
options
Equity
• No end use
restrictions
• 75% limit in List
Co
• Dividend
distribution tax
(DDT) @ 17%
ECB
• End use restrictions
for downstream
acquisitions
• Allowed for working
capital (approval
route)
• Avg. maturity-5 years
• Coupon restrictions
• Withholding tax @
5.41% (limited
window)
• Lender’s equity
holding > 25% , debt/
equity - 4:1
Evolving tax and regulatory scenario in India
PwC
FCDs
• Treated as FDI
• No end use
restrictions
• Conversion terms
upfront
• To be converted on
listing
• WHT – 10/15%
• No interest
deduction for share
acquisitions
Listed NCBs
• End use - downstream
permitted
• Eligible lenders – FIIs/
QFIs
• Coupon restrictions:
Redeemable ~ 14.5%
• WHT - 5.41%
− Interest upto
May 31, 2015
− Else 10/15%
• No interest deduction for
share acquisitions
November 2013
Slide 29
30. Entry Strategies...
Direct Route vs Intermediary Holding Company
IHCo Route
Direct Route
F Co
F Co
1. Singapore
(LOB clause)
France
O/S
India
IHCo
I Co
Identified tax efficient
jurisdictions considered
for IHCo based on India
tax treaties:
India
I Co
2. Mauritius
(no substance required? – only TRC)
3. Netherlands
(Transfer from non-resident to nonresident - capital gains are exempt)
Prudent to have substance at IHCo level
Evolving tax and regulatory position in India
PwC
November 2013
Slide 30
32. Indirect Tax Structure in India – An Overview
Central Levy
Customs
Duty
State Levy
Service
Tax
Excise Duty
Entry tax/
Octroi
CST
VAT
Co-existence of federal and state taxes –
dual VAT
Dual GST expected in next 3 years
PwC
September 2013
Slide 32
34. Key take-aways
Three steps forward – Two steps backward
Net movement – forward!
• Several changes including DTC on the anvil
• Litigious environment with continuing revenue department’s aggression, and
consequent role of judiciary
• Safe harbour rules, APA, etc are recognition of need to address tax concerns
• Approach towards disputes
- Cautious ... and yet, guard against action paralysis
- Dispute prevention strategy crucial (Advance Rulings, APA etc), especially given
delays in resolution
• Indirect transfer provisions to remain a challenge – resolution only after 2014
• Regulatory scenario to remain dynamic –spill-over tax impact
Evolving tax and regulatory scenario in India
PwC
November 2013
Slide 34
35. Glossary
Abbreviations
AAR
Authority for Advance Rulings
AMT
Alternate Minimum Tax
AoP
Association of Persons
APA
Advance Pricing Arrangements
BBT
Buy-back Tax
BPO
Business Process Outsourcing
COFACE
Compagnie Française d'Assurance pour le Commerce Extérieur
CST
Central Sales Tax
CY
Current year
DDT
Dividend Distribution Tax
DTC
Direct Tax Code
ECB
External Commercial Borrowings
EPC
Engineering, procurement and construction
FCD
Fully Convertible Debentures
FDI
Foreign Direct Investment
FII
Foreign Institutional Investor
FIPB
Foreign Investment Promotion Board
FTS
Fees for Technical Services
FY
Financial year
GAAR
General Anti-Abuse Rules
Evolving tax and regulatory scenario in India
PwC
November 2013
Slide 35
36. Glossary
Abbreviations
GDP
Gross Domestic Product
GST
Goods and Service Tax
IHC
Intermediary Holding Company
INR
Indian Rupee
IRA
Indian Revenue Authorities
IT
Information Technology
ITes
Information Technology Enabled Services
KMP
Key Managerial Personnel
KPO
Knowledge Process Outsourcing
LLP
Limited Liability Partnership
LoB
Limitation of benefits
MAT
Mimimum Alternate Tax
MFN
Most Favoured Nation
mn
Million
MNC
Multi National Company
NCB
Non Convertible Bonds
ODI
Outbound Direct Investment
PE
Permanent Establishment
QFI
Qualified Foreign Investor
R&D
Research and Development
Evolving tax and regulatory scenario in India
PwC
November 2013
Slide 36