Latest Expert Exchange Queries
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Service Tax | Sales Tax | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Indirect Tax | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing
Popular Search: cpt :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: due date for vat payment :: VAT RATES :: ACCOUNTING STANDARD :: empanelment :: articles on VAT and GST in India :: ARTICLES ON INPUT TAX CREDIT IN VAT :: VAT Audit :: TDS :: TAX RATES - GOODS TAXABLE @ 4% :: ACCOUNTING STANDARDS :: list of goods taxed at 4% :: form 3cd :: Central Excise rule to resale the machines to a new company
Transfer Pricing »
 US, Mexico agree to transfer pricing framework for maquiladoras
 Indian tax official sees expanded role for BEPS inclusive framework, addresses transfer pricing local file
  Transfer Pricing analysis of professional services provided by related-party individuals and corporations
 Transfer Pricing analysis of professional services provided by related-party individuals and corporations
 FinMin to issue rules for norms under BEPS
  CBDT signs five unilateral advance pricing agreements
 UN tax committee to consider major updates to transfer pricing manual, model tax treaty
 CRA intensifies scrutiny of complex transfer pricing tax avoidance scheme
 New transfer pricing requirements in Poland
 Additional Tax Assessment Following Transfer Pricing Control Audit
 Aligning customs with transfer pricing operations

Transfer pricing twists for the Budget
March, 18th 2015

The Bombay High Court, in its landmark judgments in the cases of Vodafone India and Shell India, held that issue of shares, being a capital transaction, does not attract transfer pricing (TP) provisions under the Indian income tax law. The court observed that investment in shares does not fall within the ambit of the definition of ‘income’ and, thus, such investment cannot be brought to tax. These resulted in deletion of TP adjustments of R166 billion. Refreshingly, the government accepted recommendations of Attorney General Mukul Rohatgi and directed the revenue authorities to refrain from challenging the rulings before the Supreme Court. The press release of the government states this controversy to be a “major correction of a tax matter which has adversely affected investor confidence.”

The government would stand to lose potential tax revenue of at least R55 billion from these taxpayers, let alone other cases having identical point of dispute. It is anticipated that the ratio laid down in these judgements would potentially be used by taxpayers for a variety of transactions impacted by these decisions. The government has decided not to challenge these judgments, but it may consider an amendment to address the collateral fallout arising from these decisions.

In case of closely held companies, where outbound investments are at higher than the fair market value of the shares of the investee company, such excess (subject to a small threshold) is taxed in the hands of the investor company. Since income could arise to the taxpayer on subscription to shares of an overseas associated enterprise, such outbound investments can attract TP provisions. The government may clarify this position in the Budget to prevent taxpayers from taking unwarranted advantage of the Vodafone and Shell decisions for all share issue transactions.

Transactions of business restructuring or reorganisation are included within the purview of TP regulations, irrespective of whether or not they have a bearing on the profit, income, losses or assets of the associated enterprises. Issue of shares, pursuant to an investment holding restructuring, amalgamation or demerger may be considered part of business restructuring and subjected to TP. The government may clarify that a business restructuring transaction involving issue of shares is subject to TP provisions if such business restructuring gives rise to ‘income’.

The court held that an element of ‘income’ was a prerequisite for the applicability of TP provisions since they are merely ‘machinery provisions’ and not ‘charging provisions’. To negate this, the government can consider amending the TP provisions to provide that all transactions entered into by a taxpayer with its associated enterprises ought to be undertaken at ALP, irrespective of an element of ‘income’. Such amendments could work well to counter the argument which taxpayers can take for non-applicability of TP provisions to any transactions that do not impact taxpayers’ income.

A charging provision can be introduced within the TP provisions, which has the effect of taxing all TP adjustments, whether on revenue or capital transactions. Inserting such a charging provision could make TP provisions a complete code. The current tax law has examples of regulations considered as complete codes on a standalone basis: the tonnage tax scheme for shipping companies is a case in point.

The government would like to receive information about intra-group transactions. Clarificatory amendments could be made to provisions relating to reporting and documentation requirements, thereby including transactions not impacting the taxable income also within the compliance requirements.
The finance minister would be under pressure to fulfil expectations of the business and investor community. While all of the above scenarios are in the realm of possibilities and probabilities, one can only wait and watch what the minister could spring out in what is considered as one of the most eagerly awaited Budgets in recent history.

Home | About Us | Terms and Conditions | Contact Us
Copyright 2016 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
SEO Company Search Engine Optimization Company US SEO Local SEO Company Website SEO Company Alabama SEO Company Alaska SEO Company Arizona SEO Company Arkansas SEO Company California SEO Company Colorado SEO Company Connecticut SEO Company Delawa

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions