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The CAM Tax team can be reached at cam.mumbai@cyrilshroff.com

Tax relief in times of Covid-19 – A review of the Indirect Tax measures

Given the disruptions in domestic and international supply chains due to the Covid-19 pandemic, the Government announced a slew of indirect tax measures to protect the interests of taxpayers. With the extension of the lockdown, it is important to take a look at the steps, which have been undertaken and the next steps required to reinforce the Government’s commitment towards economic regeneration.
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OECD’s-views-on-factors-impacting-tax-policies-and-determination-of-‘PE’-and-‘POEM’-in-times-of-COVID-19

In our previous blog, we discussed some measures which were suggested by the Organisation for Economic Co-operation and Development (“OECD”) to ease the cash flow crunch being faced by taxpayers due to the COVID-19 situation. In continuation with the same, this blog will focus on the key issues highlighted by the OECD, which should be considered by nations while granting these benefits.

In addition to the above, restriction on movement of people due to lockdowns imposed in various countries is also likely to give rise to other issues. The OECD has analysed tax treaty provisions to determine the potential impact of such restrictions on exposure to permanent establishments (“PE”) and the ‘place of effective management’ (“POEM”) of companies. This analysis is also discussed in this blog.
Continue Reading OECD’s views on factors impacting tax policies and determination of ‘PE’ and ‘POEM’ in times of COVID-19

Indian Tax measures to counter COVID-19 impact - How do they compare with OECD’s suggestions

At a time when economic activities have come to a standstill on account of the lockdown imposed by the government to tackle the Covid-19 pandemic, some leeway in tax laws will provide much needed relief to taxpayers. Many countries, including India, have announced various economic relief measures, ranging from financial aid and provision of free/ subsidised food and water to debt repayment deferrals. The idea essentially is to help people cope with the substantial reduction in their cash flows to meet their daily and business needs, especially for businesses with permanent employees whose rights may be protected legally, meeting their working capital requirements for maintaining the supply-chain, transporting goods, meeting their other contractual commitments, including those related to debt and so on. Businessmen have no control over tax payouts since the amount or percentage to be paid is fixed by the government, unless governments provide tax relief to ease cash flows.

In this context, the Organisation for Economic Co-operation and Development (“OECD”) has sprung into action to make a compilation of: (i) measures contemplated by tax administrations; (ii) constraints pertaining to those measures; (iii) recommendations to deal with the impact under tax treaties due to travel restrictions and ensuing possible tax exposures, which arise unintentionally and temporarily; and (iv) some recommendations on ‘good to have’ practices by businesses for their business continuity. The stated purpose of the compilation and these guidelines is to assist tax administrations and businesses in formulating their own possible measures. The compilations and guidelines are not recommendations with regard to any particular measures and they recognise that circumstances and considerations will vary for every country.
Continue Reading Indian Tax measures to counter COVID-19 impact: How do they compare with OECD’s suggestions?

Covid-19 – A Tale of two Courts

As the world grapples with the Covid-19 pandemic; different approaches of the judiciary to pending tax matters merit attention. In mid-March, both the Kerala and Allahabad High Courts proactively took note of the risk to lawyers, court staff and judges on account of increase in the number of petitions being filed daily and passed orders restricting the Centre and State Governments from initiating tax recovery proceedings or taking any coercive measures till April 6, 2020.[1] The Kerala High Court also held that the assessment proceedings required to be completed before March 31, 2020 could also be deferred subject to the order of the Court.
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Dividend Distribution Tax Abolishment - Here’s Something Lost in Translation

The government has said taxes on income received from dividends will now have to be paid by the shareholders instead of the dividend distributing company. The Finance Bill 2020 presented alongside the Union Budget on February 1, 2020 abolished the imposition of Dividend Distribution Tax (“DDT”) w.e.f. FY 2020-21. Over two decades ago, the Finance Act 1997 under Income Tax Act, 1961(“IT Act”), introduced DDT wherein the taxes on dividend were directed to a single point i.e. to be paid by the dividend distributing company and the incidence of tax shifted from the recipient to the payer. Doing away with this practice, the government has once again reverted to the pre DDT days. Present rate of DDT is @15% on gross basis plus surcharge and cess, resulting in net tax rate of 20.56%.
Continue Reading Dividend Distribution Tax Abolishment: Here’s Something Lost in Translation

MLI Impact on Treaty Benefit Tax Blog

The Base Erosion and Profit Shift (“BEPS”) programme, initiated by OECD, had recommended a host of action plans, which could be implemented by making changes to the international tax treaties. . However, there are more than 3000 bilateral tax treaties entered into by contracting countries and it would have taken years to amend them. To solve this problem, over 100  jurisdictions negotiated and concluded a multi-lateral instrument (“MLI”) in November 2016. Countries that agreed to change their tax treaties were required to sign and notify the OECD Secretariat.  India was amongst the first few signatories to the MLI in 2017 and ratified   it on June 25, 2019. Thus, its network of bilateral tax treaties would be impacted by the provisions of the MLI where its treaty partner is also a signatory. It is, therefore, necessary now to read the applicable tax treaty with MLI, based on the treaty partner’s position and reservations on the provisions of the MLI.
Continue Reading Have You Checked the Applicability of Multi-Lateral Instrument Impacting Your Treaty Benefit Claim?

 Banana for Rs 442 - GST Tax Laws

A recent social media post by an Indian actor depicting an invoice issued by a prominent hotel where he was charged INR 442 for two bananas created widespread furor among the public, industry players and the tax authorities, with certain quarters challenging the legality of levy of Goods and Service Tax (“GST”) itself on the supplies made. The invoice indicated the description of the sale item as a ‘fruit platter’ and the cumulative rate of GST as 18%. The Central Excise & Taxation Department also swung into action, served a show cause notice to the hotel and imposed a penalty of INR 25,000 for levying GST on sale of bananas. According to the department, serving bananas to the customer in a hotel room was an exempt supply of goods, not involving any element of service.

The banana row brings to light the classic conundrum of classification of composite supplies and consequent rate of GST applicable to such supplies. Composite supplies refers to supplies of two or more taxable supplies of goods or services or both, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply (for example, supply of an air-conditioner coupled with delivery and installation at the customer’s premises would be a composite supply with supply of air-conditioner being the principal supply). The rate of tax in case of a composite supply is the rate applicable to the principal supply.
Continue Reading Banana Bytes: A Classification Conundrum under GST

claim of depreciation of assets and carry forward of expenditure by trusts

In a very recent judgment of Income Tax Appellate Tribunal, Delhi (ITAT) in DCIT(E) v. Smt. Angoori Devi Educational & Cultural Society (Angoori Devi),[1] two very important questions in relation to the taxation of trusts were discussed:

  1. Whether depreciation can be allowed on assets that were acquired out of contributions received, which were exempt from tax since the said expense was allowed as application of income in the past years under Section 11 of the Income Tax Act, 1961 (IT Act);
  2. Whether excess expenditure incurred by a trust in an earlier assessment year could be allowed to be set off against the income of the subsequent year, and in the event of delay in filing the return, whether such a carry forward can be disallowed under section 80 of the IT Act.


Continue Reading Delhi ITAT clarifies the issues around claim of depreciation of assets and carry forward of expenditure by trusts

 

Insurance Compensation Outside India for Loss of Interest in Indian Subsidiary Not Taxable in India

In M/s Adidas India Marketing (P.) Ltd. v. Income Tax Officer,[1] the Delhi Bench of the Income Tax Appellate Tribunal (ITAT) held that the insurance compensation received by the foreign parent due to loss of financial interest in its Indian subsidiary is not the subsidiary’s income as alleged by the tax officer and, therefore, is not taxable in India.

Facts

Adidas India Marketing (P.) Ltd. (Assessee) is an Indian company engaged in the business of sourcing, distributing and marketing products of the brand ‘Adidas’. Nearly all (98.99 %) of the Assessee’s equity is held by another Indian company, Adidas India Private Ltd. (Adidas India), which, in turn, is a subsidiary of a German company, Adidas AG, Germany (Adidas Germany).
Continue Reading Insurance Compensation Outside India for Loss of Interest in Indian Subsidiary Not Taxable in India, Holds Delhi ITAT

 

ITAT on the Taxability of Transfer of Know-how Under Development

Research and development (R&D) in all fields is a costly affair, but more so in bio-technology, where molecules are first evolved, developed and then subjected to arduous and expensive clinical trials. Till such time that the molecule reaches the final stage, it is simply work-in-progress (WIP), even though the idea and formulation are valuable.

Further development of the WIP is even more expensive and needs an even larger source of funding. To brave cash crunches and the inherent risk of uncertainty in R&D, a common and relevant modus operandi for many WIP technologies is to transfer such WIP into another group company or a joint venture company. Such transfer is intended to facilitate further fine-tuning of the WIP until eligible for commercial exploitation, through licensing, manufacturing, production or processing.
Continue Reading ITAT on the Taxability of Transfer of Know-how Under Development