“The words “Permanent Establishment” postulate the existence of a substantial element of an enduring or permanent nature of a foreign enterprise in another, which can be attributed to a fixed place of business in that country. It should be of such a nature that it would amount to a virtual projection of the foreign enterprise of one country onto the soil of another country.”
International Taxation
A MAP request can be made by a taxpayer when it considers that the actions of the tax authorities of one or both of the treaty partners results or will result in taxation not in accordance with the relevant DTAA.
a. Transfer Pricing adjustments
b. Existence of a Permanent Establishment
c. Attribution of profits to a Permanent Establishment
d. Characterisation or re-characterisation of an income or expense
Tie-breaker rules are included in tax-treaties to help determine which country has the right to tax an individual as the country of residence in case the individual qualifies as a resident (for tax purposes) under the domestic laws of both countries.
Tie-breaker rules, as the name suggests, serve to determine which of two countries should tax an individual as his/her country of residence, in case there is a “tie” on the matter between two countries. The country of residence (determined according to the tie-breaker rules) taxes the induvial (usually) on worldwide income (while allowing for exemptions of income or credits for taxes paid on income sourced in the other country) and the other country taxes the individual only on income sourced in that country. Hence, double taxation of the same income is avoided.
The recent ‘Panama Papers’ scandal illustrated how wealthy individuals and companies have taken advantage of ‘tax havens’ or ‘secrecy jurisdictions’ and managed to keep their financial affairs relatively private. However, the concept of using a tax haven with an attractive tax regime and a high degree of secrecy is an age-old notion used legitimately for tax planning purposes.
Tax deducted at source is the amount that is to be deducted at the time of making payment to the contractors, professionals etc. whereas withholding tax is the amount deducted in advance i.e. before paying the amount to the payee withholding tax is deducted for paying the tax to the government. TDS is entitled to the people of India while withholding tax is applicable for payments to non-residents i.e. foreign transactions.
No provision of equalisation levy are applicable if the payments are made for personal purpose.
Equalization Levy is a direct tax, which is withheld at the time of payment by the service recipient. The two conditions to be met to be liable to equalization levy:
a. The payment should be made to a non-resident service provider;
b. The annual payment made to one service provider exceeds Rs. 1,00,000 in one financial year.
No, since during the financial year your annual payments did not exceed 1,000,00 you are not liable to deduct equalisation levy.
i. Any transaction in respect of any goods, services or property carried out by a non-resident in India including provision of download of data or software in India if the aggregate of payments arising from such transaction or transactions during the previous year exceeds the amount as may be prescribed; or
ii. Systematic and continuous soliciting of its business activities or engaging in interaction with such number of users as may be prescribed, in India through digital means.
Provided that the transactions or activities shall constitute significant economic presence in India, whether or not,—
- the agreement for such transactions or activities is entered in India; or
- the non-resident has a residence or place of business in India; or
- the non-resident renders services in India
An assessee, being a resident shall be allowed a credit for the amount of any foreign tax paid by him in a country or specified territory outside India, by way of deduction or otherwise, in the year in which the income corresponding to such tax has been offered to tax or assessed to tax in India, in the manner and to the extent as specified in this rule.
Provided that in a case where income on which foreign tax has been paid or deducted, is offered to tax in more than one year, credit of foreign tax shall be allowed across those years in the same proportion in which the income is offered to tax or assessed to tax in India.
An OCI card holder gets the following benefits: A multiple entry, multi-purpose life-long visa for visiting India. Exemption from registration with local police authority for any length of stay in India.
Tax information exchange agreements (TIEA) provide for the exchange of information on request relating to a specific criminal or civil tax investigation or civil tax matters under investigation.
The Foreign Account Tax Compliance Act (FATCA), which was passed as part of the HIRE Act, generally requires that foreign financial Institutions and certain other non-financial foreign entities report on the foreign assets held by their U.S. account holders or be subject to withholding on withholdable payments. The HIRE Act also contained legislation requiring U.S. persons to report, depending on the value, their foreign financial accounts and foreign assets.
Advance Pricing Agreements particularly serve to avoid transfer pricing disputes by agreeing on the arm’s length price in advance. The process is that taxpayers and their counsel can come in and meet with specialists of the APA division to explore whether the relevant facts in their case qualify for an APA or not.
Safe harbour refers to the circumstances under which income-tax authorities will accept the transfer price declared by the assessee without any question or scrutiny. It aims to provide a certain degree of certainty to taxpayers. A safe harbour regime will, in particular, benefit taxpayers in the services sector by adopting a transfer pricing mark-up in the range prescribed to avoid protracted litigation.
Thin capitalization refers to the ratio of debt to equity. Where a corporation is heavily capitalized by debt claims, it is considered to be thinly capitalized. In certain circumstances, a corporation that is thinly capitalized by non-residents may not be entitled to a full deduction of its interest expense.
a. Base erosion and profit shifting (BEPS) refers to tax planning strategies that exploit gaps and mismatches in tax rules to make profits ‘disappear’ for tax purposes or to shift profits to locations where there is little or no real activity but the taxes are low resulting in little or no overall corporate tax being paid.
b. What is the main difference between OECD Model and UN Model of International Convention?
(a) The main difference between the UN Model and the OECD Model is a variance in the applicability of the principle of source state taxation. … In contrast, the UN Model is explicitly meant, reference is made to its full title, to provide guidance to developing countries.
Yes, Three-tier transfer pricing documentation structure is required to be maintained as per statute:
a. Local File- This needs to be documented with the Company itself.
b. Master File- Needs to be filed with IT Department.
c. Country by Country Report– Needs to be filed with IT Department.
