OVERSEAS INVESTMENTS

Tax policy and tax enforcement are constantly evolving. Economic and political pressures often lead to changes in tax policy and tax administration that impact markets, businesses and customers. Tax has become increasingly interconnected and tax changes in one jurisdiction can now trigger changes across the globe.

Countries are working together on the development and adoption of new policies for the taxation of cross-border businesses. Governments are collecting and sharing more taxpayer information. The result is that tax controversy is evolving from two-sided disputes in specific countries into a multidimensional, multi-country dynamic.

Companies must act so that their people, policies and systems are keeping pace. They need to understand tax policy trends and anticipate the direction of future developments to be able to integrate these considerations into tax and business planning.

NR Professionals (hereinafter referred as NRP) Global Tax policy and controversy teams can help you to resolve this complex environment. We provide an “over the horizon” view of future tax policy developments and support engagement with tax policymakers around the world. Should disagreements arise, NRP provide an essential bridge between the tax authorities and the company and support implementation of a globally integrated approach to tax controversy management.

1. Compounding Of Contravention Under FEMA, 1999

Contravention is a breach of the provisions of the Foreign Exchange Management Act (FEMA), 1999 and rules/ regulations/ notification/ orders/ directions/ circulars issued there under. Compounding refers to the process of voluntarily admitting the contravention, pleading guilty and seeking redressal. The Reserve Bank is empowered to compound any contravention as defined under section 13 of FEMA, 1999 except the contravention under section 3(a)1 ibid, for a specified sum after offering an opportunity of personal hearing to the contravener. It is a voluntary process in which an individual or a corporate seeks compounding of an admitted contravention. It provides comfort to any person who contravenes any provisions of FEMA, 1999 by minimizing transaction costs. Willful, deceptive and fraudulent transactions are, however, viewed seriously, which will not be compounded by the Reserve Bank.

Who can apply for compounding?
Any person who contravenes any provision of the FEMA, 1999 [except section 3(a)] or contravenes any rule, regulation, notification, direction or order issued in exercise of the powers under this Act or contravenes any condition subject to which an authorization is issued by the Reserve Bank, can apply for compounding to the Reserve Bank.

Our Key Services Offerings are: 
1) Verifications & Scope of Compounding credentials vis-à-vis contraventions analysis
2) Assisting in carrying out procedures for compounding with RBI
3) Appearance before authorities for personal hearing
4) Pre-requisite analysis for Compounding process
5) Assistance in compliances required to be done before applying to Compounding of Offences
6) Consultancy with respect to Guidance Note on Computation Matrix
7) Assistance in payment of convention when order of compounding is received within due times

2. Representation before Authority for Advance Ruling

The scheme of advance rulings was introduced by the Finance Act, 1993. Chapter XIX-B of the Income-tax Act, which deals with advance rulings, came into force with effect from 1-6-1993. Under the scheme the power of giving advance rulings has been entrusted to an independent adjudicatory body. Accordingly, a high-level body headed by a retired judge of the Supreme Court has been set-up. This is empowered to issue rulings, which are binding both on the Income-tax Department and the applicant. The procedure prescribed is simple, inexpensive, expeditious and authoritative.

Advance Ruling means written opinion or authoritative decision by an Authority empowered to render it with regard to the tax consequences of a transaction or proposed transaction or an assessment in regard thereto. It has been defined in section 245N(a) of the Income-tax Act, 1961 as amended from time-to-time.

Time Limit: The statute provides that the AAR should pronounce its ruling within six months of the receipt of the application

Fees for AAR Application:
The fee to seek an advance ruling range from INR 10,000–1,000,000 that depends upon the threshold of transaction and category of applicant.

Is order of AAR is appealable?
Initially, the Act provided that the ruling of the AAR would bind the applicant as well as the tax authorities (in respect of the transaction for which the ruling has been sought) and did not provide for any appeal against the ruling.

However, in the absence of a statutory right to appeal, both taxpayers and the tax authorities started filing Special Leave Petitions (SLPs) directly to the apex court (i.e., the SC) against unfavorable rulings of the AAR. These appeals were filed to the SC as the Constitution of India vests the SC (under Article 136 of the Constitution) with special power to grant leave to appeal against any judgment or order or decree in any matter or cause, passed or made by any Court or Tribunal in India.

The SC ruled that an appeal against an AAR ruling should be first made before the HC. Subsequently, if either party desires, it can prefer an appeal to the SC. The original intention was to make the AAR ruling non-appealable by both the taxpayer and the tax administration. The actual situation now is that either party can institute an appeal against an AAR ruling – first, before a HC and subsequently before the SC.

Exchange of Rulings:
One of the BEPS common minimum standards is a transparency framework that applies to tax rulings. This includes the spontaneous exchange of certain categories of rulings that includes Permanent Establishment (PE) rulings. Accordingly, India exchanges PE related rulings issued by the AAR with the relevant countries of residence of the applicants. Besides, Action Plan 14 recommends improving dispute resolution which means the mutual agreement procedure (MAP), Advance Pricing Agreements (APA) as well as AAR for avoiding double taxation, which is expected to accentuate after rollout of BEPS.

Our Key Services Offerings are:

a) Determination of Eligibility of Applicant
b) Verification of transactions that could be brought within the ambit against AAR
c) Documentation Preparation and Maintenance
d) Compliance Procedures for filing respective forms viz. Form 34C, 34D, 34DA, 34E & 34EA to AAR authority
e) Assistance in Personal Hearing or further written submissions.
f) Assistance in query resolutions raised by AAR.

3. Representation before CIT(A), Dispute Resolution Panel (DRP) and Income Tax Appellate Tribunal (ITAT)

Our lawyers have extensive experience and have represented clients on some of the most complex disputes in the field of international taxation, FEMA and Transfer Pricing. Our skills in resolution of difficult and unique tax controversies involving substantial sums in dispute has been recognized by clients.

Our in-depth understanding of industry verticals, product knowledge, greater insight into domestic as well as international laws, in depth experience of procedural compliances have put us into esteemed position for services of appearance before authorities viz. CIT(A), DRP & ITAT. Our emphasis on research and continuous learning has stood us in good stead, with our people being recognized and felicitated for our thought leadership.

What is Dispute Resolution Panel?
As per Income-tax (Dispute Resolution Panel) Rules, 2009, The Dispute Resolution Panel is a body constituted by the Central Board of Direct Taxes (CBDT) and is a collegium consisting of three Commissioners of Income-tax.

Difference between CIT and CIT(A):
CIT i.e. commissioner of Income tax is charged with the administrative powers like assessment, Tax computation and issuing orders. Whareas CIT(A) i.e. commissioner of income tax appeals is the quasi judicial body within the income tax department, Any person who is not satisfied with or aggrieved of any order of CIT or any other officer of the department he can file an appeal to CIT(A) against that order, This is the first order of appeal if any person is not satisfied with the decision of CIT(A), He can go to ITAT i.e. income tax appellate tribunal, Then HC and SC.

Our Key Services Offerings are:
(1) Dispute analysis and its current standing
(2) Collection of Facts of the case
(3) Extracts of domestic and international relevant case laws & its insightful interpretations along with essence
(4) Assist in procedure for filing objections against Dispute Resolution Panel
(5) Reply to show cause notice
(6) Assist in application to respective authority & other procedural compliances
(7) Personal hearing on behalf of our aggrieved clients
(8) Assist in written submissions, query resolutions

4. International Tax Controversies

NRP are recognized leading players in the field of international tax controversies & litigation and are recognized for our innovative approach to tax structuring and tax controversy & litigation practice. Our tax lawyers have extensive experience and have represented clients on some of the most complex disputes in the field of international taxation. Our skills in resolution of difficult and unique tax controversies involving substantial sums in dispute has been recognized by clients.

Our in-depth understanding of industry verticals such as investment funds, e-commerce, business process outsourcing, media and entertainment etc. coupled with our extensive knowledge of international laws and international tax laws enable us to approach tax disputes in an integrated manner. Our emphasis on research and continuous learning has stood us in good stead, with our people being recognized and felicitated for our thought leadership

Our Key Services Offerings are:
Our international tax controversy & litigation practice assists clients on the following:
a) Identification of key tax controversy issues at the time of structuring of the transaction.
b) Providing strategic guidance for approach to potential tax controversies.
c) Preparing submissions before the Tax authorities and the administrative appellate authorities.
d) Representing clients before the Dispute Resolution Authority for matters relating to international taxation.
e) Representing clients before the Authority for Advance Ruling and the Income Tax Appellate Tribunal.
f) Representing clients before the High Courts and the Supreme Court of India and briefing senior counsels where required.

5. Representation before Authorities like The Foreign Investment Promotion Board (FIPB), Reserve Bank of India

NR Professionals has enriched experience of representation before RBI and FIPB authorities. Our proven track records of successfully appearance of our clients in front of RBI and FIPB has placed ourselves into most valuable and esteemed position into this domain.

What is FIPB Approval and Why is it required?
FDI or Foreign Direct Investment is an investment made by foreign countries in India. While foreign companies may invest directly in certain activities without approval, the government of India lays down a clear procedure for obtaining FDI approval for those activities not covered under the automatic route. Approvals are routed through the FIPB (Foreign Invest Promotion Board).

Foreign companies invest in India in different ways and permissions depending on the mode of investment or business model adopted by the company.

For instance, a foreign company may purchase shares of an Indian company without prior approval unless such a purchase results in the foreign company acquiring the Indian company – in which case approval by SEBI is required. Where a company already has collaboration in India and seeks to establish another collaboration, it would require FIPB approval.

Our Key Services Offerings are:
1) Fact of the case compilations and interpretations
2) Structuring flow of case credentials
3) Assist in carrying out its procedural compliances including filing of application before authorities
4) Assist in written submissions to respective authorities
5) Extracts of relevant case laws and interpretations of domestic as well as international laws provided
6) Assist in replying to queries raised by the authorities
7) Personal Hearing on behalf of our esteemed client

6. Mutual Agreement Procedure

A major risk international business transactions face is potential double taxation by multiple tax authorities. Most tax treaties negotiated between countries provide a mechanism to avoid double taxation. Multinationals can file a MAP claim requesting the relevant fiscal authorities to resolve disputes

concerning double taxation. The experienced GTPS professionals of NRP in India can provide assistance in lodging a MAP claim requesting the relevant cross-border revenue authorities to resolve disputes concerning double taxation and assist in preparing the relevant MAP submissions by involving our team of specialists and our NRP network.

MAP is an alternative available to taxpayers for resolving disputes giving rise to double taxation whether juridical or economic in nature. The agreement for avoidance of double taxation between the countries would give authorization for assistance of Competent Authorities in the respective jurisdiction under MAP. In the context of OECD Model Convention for the Avoidance of Double Taxation, Article 25 provide for assistance of Competent Authorities under MAP.

The main benefit of pursuing MAP is elimination of double taxation (either juridical or economic). It is very rare that a case under MAP is not resolved. The MAP resolution, once accepted, eliminates the need for protracted litigation.

Also, cases involving certain jurisdictions (US, UK and Denmark), the Indian authorities have entered into an agreement under which the taxpayer can choose to provide a bank guarantee for the outstanding tax demand. In such cases, the tax demand would not be pursued by the tax authorities until disposal of the MAP application.

Time Limit for filing application for MAP:

The time limitation for filing an application for MAP is governed by the respective Treaty for Avoidance of Double Taxation entered into between the countries. Generally, the time limit ranges between two to three years from the date of the notice giving rise to double taxation. Based on our experience, the date of order of the original Assessment would be reckoned for computation of time limitation for filing an application for assistance of Competent Authorities under MAP.

Our Key Services Offerings are:

1. NRP in India can provide guidance on the eligibility, feasibility and period for which the MAP option is to be exercised,
2. Facts and Documents preparation
3. Procedural compliances like Filing of application before competent authorities, procedure for withdrawal of domestic appeal in case the settlement under MAP is accepted & other relevant procedural compliances
4. Advice on MAP applicability’s
5. Personal Hearing before competent authorities on behalf of clients
6. Assisting in preparing Written submissions & resolution of queries raised by authorities

7. Safe Harbour Rules (SH)

Safe Harbour Rules-What it means?
Safe harbour refers to a legal provision to reduce or eliminate liability in certain situations as long as certain conditions are met. In other words, it refers to the circumstances under which the Income Tax authorities shall accept the transfer price declared by the assessee and the same shall be without any question or scrutiny.

Businesses flourish only if there is certainty and safe-harbour provisions offer that certainty to them. It is a provision of the Income Tax Act that specifies that from the perspective of Transfer Pricing (TP) provisions, if the assessee fulfils certain defined circumstances, the Income Tax authorities shall accept the TP declared by the taxpayer.

Safe Harbour Rules (SHR), introduced by the Central Board of Direct Taxes (CBDT) in the year 2009, provides for circumstances in which a certain category of taxpayers can follow a simple set of rules under which transfer prices are automatically accepted by the revenue authorities.

Such safe harbour rules benefit assessees by allowing them to adopt a transfer pricing mark-up in the range prescribed, which would be acceptable to the Income Tax department with benefits of compliance relief, administrative simplicity and certainty and hence would avoid protracted litigation.

Benefits of Safe Harbour Rules?
The adoption of safe harbour rules provides many perceived benefits both for taxpayers and the revenue authorities like:

a) Advance information or knowledge about the range of profits or prices to qualify for SHR. This brings certainty in transactions.
b) Elimination of the possibility of litigation between the taxpayers and the revenue authorities.
c) Automatic approvals and self-assessment procedures.
d) Ease in compliance.
e) Reduction in compliance cost.

The above-mentioned perceived benefit helps the taxpayers and its counterparts for better planning of intra-group transactions.

Our Key Services Offerings are:
a) NRP in India can provide guidance on the eligibility, feasibility and period for which the Safe Harbour Rule option is to be exercised
b) assist with the procedural requirements relating thereto
c) provide guidance for representations before the respective revenue authorities
d) provide assistance in complying with the prescribed SH norms.

8. Advance Pricing Agreements (APA)

The transfer pricing framework in India has been introduced through Finance Act, 2001 which requires determination of Arm Length Price (ALP) for all the international transaction between associated enterprises. Since then, the ALP determination has been the matter of long aged and numerous disputes between department of revenue and taxpayer. To minimise these disputes, the concept of advance pricing agreement has been introduced in India by Finance Act, 2012 through insertion of section 92CC and 92CD read with rule 10F to 10G and 44GA.

What Is Advance Pricing Agreement?

As per OECD transfer pricing guidelines, APA (or arrangements) is an arrangement that determines, in advance of controlled transactions, an appropriate set of criteria for the determination of the transfer pricing for those transactions over a fixed period. In other words, an APA is an agreement between board and taxpayer/ any person for determining ALP for specifying the manner of determining ALP in relation to international transaction.

Section 92CC of income tax act, 1961 enables the board to enter into APA with any person for determining ALP or manner of determining ALP in relation to international transaction.

Our Key Service Offerings are:

1. NRP in India can provide guidance on the eligibility, feasibility and period for which the Advance Pricing Agreement (APA) option is to be exercised,
2. Pre-Filing consultation
3. Assisting in filing application to Direct General of Income Tax (International taxation) in case of unilateral agreement and to competent authority of India in case of bilateral or multilateral agreement
4. Assistance in Revisions and Cancellation of an agreement
5. Advisory & Procedural Compliances for Roll Back Provisions
6. Interpretation and analysis of Effect of Advance Pricing Agreement
7. Assist in filing Annual Compliance Report and Compliance Audit

9. Appearance before Transfer Pricing Officer (TPO)

“Transfer Pricing Officer” means a Joint Commissioner or Deputy Commissioner or Assistant Commissioner authorized by the Board to perform all or any of the functions of an Assessing Officer specified in sections 92C and 92D in respect of any person or class of persons.]

Section 92C dealing with computation of Arm’s Length Price whereas Section 92D deal with Maintenance and keeping of information and document by persons entering into an international transaction or specified domestic transaction. The reference to the TPO by the AO needs prior approval of the jurisdictional Principal Commissioner of Income-tax (‘PCIT’) or CIT.

Chronology of Transfer Pricing Proceedings:

The chronology of a typical transfer pricing proceeding is as follows:
-Filing of the Income-tax return by an Assessee
-Reference made by the Assessing Officer (‘AO’) to the Transfer Pricing Officer (‘TPO’)
-Transfer pricing proceedings conducted by the TPO and passing of the TP order.
-AO passes draft assessment order (‘DAO’) incorporating the additions proposed by the TPO
-If no intimation is received within 30 days by the Assessee, the AO would issue the Final Assessment Order.
-In case the Assessee has approach the DRP against the additions proposed in the DAO, the Final Assessment Order can only be passed by the AO after receiving directions from the DRP.
-Against the FAO, the Assessee may go for further appeal before the Income-Tax Appellate Tribunal, the High Court and the Supreme Court (sequentially)

Our Key Services Offerings are:
a) Transfer Pricing documentation preparation and maintenance
b) Assist in Written Submissions on behalf of our clients
c) Appearance before TPO on behalf of clients
d) Assist client in query resolutions
e) Application to Dispute Resolution panel (DRP) for any dispute against “Draft Assessment Order (DAO)”
f) Analysis on Transfer Pricing (TP) risk parameters