Photo of Surajkumar Shetty

Principal Associate in the Tax Practice at the Mumbai office of Cyril Amarchand Mangaldas. Suraj specialises in various aspects of direct tax relating to M&A transactions, international tax, corporate tax, funds taxation, etc. He can be reached at surajkumar.shetty@cyrilshroff.com

Foreign Pension Funds’ tax treatment to match Sovereign Funds for certain investments 

Background

With a view to boost infrastructure investments in India and make Indian investment more attractive, the Finance Act, 2020 (FA, 2020) introduced section 10(23FE) in the Income-tax Act, 1961 (IT Act). This section provides an exemption from tax in India in respect of income of certain specified investors who have investments in the infrastructure sector. Specified investors for this purpose include a wholly owned subsidiary of Abu Dhabi Investment Authority, ‘pension funds’ (PF) and ‘sovereign wealth funds’ (SWF). The exempt income would include interest, dividend or long-term capital gains arising to the specified investors, from their investments made in (a) company or entity engaged in developing, maintaining or operating an ‘infrastructure facility’ (Infra Companies); (b) Category-I and Category-II Alternate Investment Funds which have in turn made all their investments in Infra Companies; and (c) business trusts (i.e. Real Estate Investment Trusts and Infrastructure Investment Trusts). These exemptions are available if the Specified Investors meet certain conditions, including the requirement that they should be notified by the Indian Central Government in this regard. In pursuance to this, the Central Board of Direct Taxes (CBDT) has specified the procedure for the inclusion of PFs in the tax exemption notification.
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Assessing Indian tax considerations for successful offshore listing of Indian companies

We have seen in the blog dated September 14, titled ‘Using SPAC Vehicles as a Means of Listing Outside India’, that special purpose acquisition companies (“SPAC”) are making a comeback for the purposes of listing of companies outside India.

As a follow up to the earlier blog, we will examine some feasible structures for offshore listing and their Indian tax considerations. This examination is intended to identify the relevant tax considerations and ensure that such a listing takes place with due regard to them.

Shares of Indian companies and of foreign companies, deriving substantial value from Indian assets, are regarded as capital assets situated in India. Any gains derived by any person, including a non-resident, from transfer of an Indian capital asset is regarded as income taxable in India. The term ‘transfer’ in this context is given a very wide meaning and it includes within its purview sale, exchange, relinquishment of the asset, extinguishment of any right in the capital asset, conversion of the capital asset into stock in trade, maturity or redemption of zero coupon bond, etc. We will limit ourselves here to the meaning of transfer in relation to shares and securities. The law also provides how the gains are to be computed when there is a transfer of shares. It is a settled law that where the mechanism to compute gains is not available, it is presumed that the legislature did not intend such a transfer to be subjected to tax.
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Tax And White-Collar Crimes - Corporate Strategies – Part 2

Introduction

COVID-19 has put an unexpected brake on the economy, resulting in loss of jobs, opportunities, income for businesses and reduced demand for many products, leading to reduced production capacity in many cases. This reduction could be a result of a variety of factors, ranging from paucity of funds, lack of availability of labour or due to strict lockdowns imposed by Governments, which has resulted in restriction on movement of raw materials and finished goods. All of these could potentially also lead to an increase in tax related white-collar crimes, as discussed in the first part of this series.

In Part 1 of the series, we gave an overview, analysing the regulatory framework put in place to check white-collar crimes such as tax evasion, money laundering and financial fraud. This article deals with corporate strategies that companies may consider for the purposes of mitigating risks arising out of the potential violation of law, while also discussing global practices put in place to curb tax avoidance and evasion. Here we shall also deal with the risk of liabilities of directors and key managerial personnel with respect to such white-collar crimes.
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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.
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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.
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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.
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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.
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Taxpayer’s Choice for Valuation of Shares at Premium Upheld

The Income Tax Appellate Tribunal (ITAT) in the case of M/s. Rameshwaram Strong Glass (P) Ltd. v The Income Tax Officer[1] has upheld the right of the company issuing shares to choose the valuation methodology under the provisions of the Income Tax Act, 1961 (IT Act) read with the rules framed thereunder (Tax Law) for the purposes of determining the ‘fair market value’ (FMV) of such shares at premium.
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