Photo of Daksha Baxi

Head of International Taxation at the Mumbai office of Cyril Amarchand Mangaldas. Daksha has a vast experience of over 30 years in taxation laws and also specialises in succession and estate planning, education sector and employee equity compensation. She can be reached at daksha.baxi@cyrilshroff.com

Clarity on eligibility criteria for funds set up by Category I FPIs for exemption from taxable presence in India

Background

A special  taxation regime, provided under Section 9A of the Income-tax Act, 1961 (“IT Act”), exempts eligible offshore funds, with their fund managers located in India, from treating them as having taxable business presence in India. On satisfaction of the requirements set out in Section 9A of the IT Act, management of the funds through such Indian fund managers would not constitute the offshore fund’s ‘business connection’ in India. It is important to note that when an offshore fund, satisfying these conditions is not taxable in India on its business income under the domestic law, then the question of it not having permanent establishment under the applicable double taxation avoidance agreement (“DTAA”) becomes moot. Additionally, Section 9A also excludes an eligible investment fund from being treated as resident in India for tax purposes under the provision of ‘Place of Effective Management’ when the eligible fund manager undertakes fund management activities while situated in India.
Continue Reading Clarity on eligibility criteria for funds set up by Category I FPIs for exemption from taxable presence in India

In its recent ruling[1], the Income Tax Appellate Tribunal Bench at Delhi (ITAT) has reiterated the well-established principles, including (i) validity of Trusts; (iii) use of Trusts to hold treasury shares[2]; and (iii) the taxation of its income as a representative of the beneficiary/beneficiaries under the provisions of sections 160-166 of the Income-Tax Act, 1961 (IT Act). The ITAT further upheld the principle that trustees are to be assessed as ‘representative assessee’ in the same and like manner as beneficiaries and therefore, creation of a Trust is not a tax evasion device as the Trust will have the same tax liability and exemptions accruing to the beneficiary.


Continue Reading Trust is Trustworthy, not a Device to Evade Tax: ITAT Delhi

The ripples from the 2008 global financial crisis (GFC) were felt all around the world, causing unprecedented strain on national exchequers and on companies’ balance sheets for several years. The COVID-19 pandemic is expected to cause greater economic hardship than even the GFC or the great depression of 1929[1]. Such events often lead to policy makers pushing for aggressive tax regimes aimed at bulking up national exchequers and tightening of regulatory frameworks to prevent leakages from their economies through tax evasion, money laundering and other such white-collar crimes.

In keeping with the global trend, India has, in the recent past, adopted a very strict approach towards offenses such as tax evasion, money laundering and benami transactions. The current pandemic and its economic repercussions are sure to test the regulatory framework as individuals and corporates alike are tempted to push the envelope. Even prior to the pandemic, the Indian Income Tax department had detected approximately INR 37,946 crore worth of tax fraud in financial year 2018-19 and INT 6,520 crore in April-June 2019.[2]


Continue Reading Tax and White-Collar Crimes: The whole nine yards (Part I)

Mauritian entities have found it difficult to benefit from the capital gains tax exemption under the India- Mauritius double taxation avoidance agreement (DTAA) upon exit from Indian investments with the tax department questioning the said benefits. Recently, the Authority for Advance Ruling (AAR), declined to give a ruling on taxability of a Mauritian resident in India, on the grounds that the transaction was prima facie designed for avoidance of tax.[1]


Continue Reading AAR declines ruling to a Mauritius resident, alleging that transaction was designed to avoid tax

Rules for minimum remuneration notified for Indian managers of offshore funds to qualify for exemption from taxable presence in India

Background

Section 9A of the Income-tax Act, 1961 (“IT Act”) carves out a special taxation regime to exempt eligible offshore funds from being regarded as having a business presence in India and hence subject to taxation in India, despite their fund managers being located in India. If the offshore funds as well as

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?

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?

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