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Corporate Tax

Notable case law: private share placements, slump sales and transfer pricing
India | 10 May 2019

This article looks at notable tax decisions from the Indian courts, including a Supreme Court decision concerning the receipt of share capital in case of private share placements. It also examines the Bombay High Court's decision regarding the sale of an entire unit as a going concern and a recent case involving transfer pricing adjustments.

India signs agreement with United States on exchange of country-by-country reports
India | 03 May 2019

India and the United States recently signed an inter-governmental agreement on the exchange of country-by-country reports. As a result of this agreement, Indian constituent entities of international groups which are headquartered in the United States and have already filed country-by-country reports in that jurisdiction do not have to file such reports in India.

Hedging loss is not international transaction
India | 12 April 2019

In a recent case before the tax tribunal, a taxpayer gave an unsecured loan to its associated enterprises for which it had charged interest equal to LIBOR plus 250 basis points based on the rate at which it had borrowed funds from a foreign bank. The tax tribunal upheld the taxpayer's benchmarking and rejected the lower tax authority's contention that had the taxpayer advanced the loan to a third party, it would have charged a mark-up for its administrative expenses and the risk borne therein.

Transfer pricing adjustments must be restricted to international transactions and made at transactional level
India | 05 April 2019

The tax tribunal recently found that the lower tax authority had erred in making a transfer pricing adjustment at the entity level, rather than the transactional level. According to the tribunal, the lower tax authority had failed to understand that third-party transactions are in fact at arm's length and cannot be considered when calculating a transfer pricing adjustment.

Tax exemption eligibility criteria for start-ups reduced
India | 29 March 2019

In a bid to generate investment in start-ups and provide certainty regarding the so-called 'angel tax', the Ministry of Commerce and Industry recently issued another notification easing the criteria to avail of the exemption under the Income Tax Act. The notification will provide start-ups with a much-needed reprieve in terms of the increased threshold limits for paid-up share capital, allowing them to avail of the exemption more easily.

GST not applicable on reimbursement of salary on behalf of foreign entity as pure agent
India | 08 March 2019

The Authority for Advance Rulings recently considered the applicability of goods and services tax (GST) on expense reimbursements in the case of 'pure agents' – a key concept when evaluating taxable services, particularly for tax exemption claims in respect of expense reimbursements and applicable GST. While rulings are binding only on the taxpayer that raises the question, they carry persuasive value in identical situations.

Taxability of profit from sale of shares
India | 15 February 2019

While the classification of gains arising from a sale of shares has previously been litigated, the Bombay High Court recently dealt with the issue of whether gains arising from such a sale by a private trust would be taxable as capital gains or business income. The ruling examines not only the treatment of shares, but also the use of sales proceeds to conclusively adjudicate on the intentions behind the sale.

Mumbai Tax Tribunal's recent rulings
India | 08 February 2019

The Mumbai Tax Tribunal recently considered whether the conversion of a company into a limited liability partnership could be considered a transfer even though it had failed to meet all of the conditions set out in Section 47(xiiib) of the Income Tax Act. In another case, the tribunal referred to a Delhi High Court ruling and stated that preference shares are part of a company's share capital and cannot be considered a loan.

Changes to direct tax-related policies and procedures
India | 25 January 2019

Recent changes to direct tax-related policies and procedures include the newly reinstated task force – which was reconstituted in order to review the Income Tax Act and draft a new direct tax law. It is scheduled to submit its report to the government by the end of February 2019. Further, the Indian government has signed a protocol with the Chinese government, amending the India-China tax treaty. The protocol incorporates changes pursuant to Base Erosion and Profit Shifting Action Plan reports.

Taxability of back-office support services provided to overseas companies
India | 21 December 2018

A recent advanced ruling examined the applicability of goods and services tax (GST) to back-office support services provided by an Indian company to a foreign client. The Advance Ruling Authority held that the back-office support services in question should be treated as intermediary services, which are not eligible to be exempt from the GST applicable to an export of services since, as per GST law, intermediary services provided by Indian companies are treated as services supplied in India.

Do liaison offices have to pay GST?
India | 07 December 2018

The Advance Ruling Authority (ARA) was constituted under Indian goods and services tax law and entrusted with the responsibility of answering questions regarding the applicability of tax, the admissibility of input tax credit, the classification of goods and services and the eligibility to receive the exemption. While an ARA ruling is binding only on the taxpayer that raises the question, it carries persuasive value in identical situations.

Transfer pricing update
India | 30 November 2018

There have been several recent cases regarding transfer pricing. For example, the tax tribunal found that a taxpayer was not a contract manufacturer, as sales and purchases from an associated enterprise had been negligible. In another case, the tax tribunal ruled that high turnover is a relevant criterion for accepting or rejecting a comparable. Further, a high court found that final assessment orders cannot be passed without a draft assessment order.

Strict interpretation of exemption notifications under tax laws
India | 23 November 2018

The Supreme Court recently pronounced a landmark judgment on the question of taxpayers' eligibility to receive tax exemptions when more than one interpretation is possible – namely, one in favour of the taxpayer and the other in favour of the tax authority. The court concluded that where a tax exemption must be interpreted, the tax authority will be given the benefit of the doubt, unlike in the case of ambiguity in the charging section of a particular statute. This judgment has completely unsettled the earlier dicta.

New updates on direct taxes
India | 16 November 2018

Alongside new guidance from the Central Board of Taxes regarding securities transaction tax, potential legislative amendments may be introduced regarding interest income on rupee denominated bonds. Further, the Chennai Tax Tribunal recently considered whether a tax officer had been correct in invoking Section 56(2)(viib) of the Income Tax Act, citing an unrealistic premium, in a case where a company had issued shares to one of its shareholders at a premium.

Direct tax updates – circulars, notifications and press releases
India | 02 November 2018

A number of new circulars, notifications and press releases have been issued in recent months. Among other things, they introduce new valuation rules for the conversion or treatment of inventory as capital assets, grant taxpayers immunity from the penalty for under-reporting income and clarify the deductions available for free trade zone undertakings.