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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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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)

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.
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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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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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