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SEZ Registration (1)

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Title: SEZ Registration (1)


1
  • PRESENTATION
  • on
  • DOING BUSINESS
  • IN INDIA


Registered office SCO 35, Second Floor, Sector
-26, Chandigarh 160 019Tel- 91-172-2790366,
2790075, Fax-91-172-2790260, Mobile-09814011278 Em
ail raman_at_ramanaggarwal.com
2
  • WELCOME

3
ABOUT ARA
  • ARA is a firm of chartered accountants.
  • ARA firm was formed in the 1988 (22 years).
  • ARA firm provide Services in the area of Audit,
    Tax (Direct, indirect) and Advisory.
  • ARA team is comprised of more than 25 multi
    displined professionals such as Chartered
    Accountants, Company Secretary, Lawyers, Cost
    Accountants and MBAs.
  • ARA have state of the art facility in Chandigarh,
    New Delhi Pune.
  • ARA have more then 100 Corporate Clients and
    leading MNCs (for USA, UK, Japan, Middle East,
    Europe).
  • Mr. Raman Aggarwal, the CEO Founder empanelled
    with the Office of Official Liquidator attached
    with the High Court of Punjab, Haryana and
    Chandigarh. An Auditor for conducting Special
    Audits approved by the Tax Authorities.
  • Nominated to the Regional Direct Taxes Advisory
    Council.
  • Member of The Institute of Internal
    Auditors, Inc., Florida, USA, International
    Fiscal Association Netherlands and PHD Chambers
    of Commerce Industry, Confederation of Indian
    Industry.

4
SERVICES SOLUTIONS
  • AUDIT AND ASSURANCE
  • TAX REGULATORY SERVICES
  • SPECIALITY SERVICES
  • Setting up New Business
  • Incorporation of a Limited Company
  • Setting up of STPI Unit and Maintenance
  • Setting up of SEZ UNIT and Maintenance
  • Doing Business in India
  • Doing Business Outside India
  • Setting up Offshore Companies
  • International Executive Services
  • Business Registrations
  • Intellectual Property
  • Payroll Services
  • Corporate Secretarial Services
  • Virtual Office Services
  • KPO-Accounts and Tax Outsource Services
  • INTERNATINOL TAXATION
  • FINANCIAL ADVISORY SERVICES

5
TEAM
S.NO NAME QUALIFICATION EXPERIENCE
1 Mr. Raman Aggarwal Fellow Chartered Accountant 25 Years in Accounts, Finance, Tax, Legal, Management etc.
2 Mrs. Simpy Gupta Bachelor in Law. Company Secretary 15 Years in Legal Corporate affairs
3 Mr. Sameer Sawrup Fellow Chartered Accountant 16 Years in Accounts, Finance, Tax, Legal, Management etc
4 Mr. Unni Krishnan Graduate 18 Years experience in Corporate Affairs
5 Ms. Arti Post Graduate 9 years experience in Regulatory Compliances
6 Mr. Sanjay Aggarwal Chartered Accountant 18 Years Accounts, Finance Tax
7 Mr. Suman Master in Commerce 14 Years in Accounts, Finance, Tax, Legal, Management etc
8 Mr. Vineet Thakral Master in Law Management 2 Years Tax and Regulatory
9 Ms. Manmeet Kaur Masters in Law 3 Years Legal
10 Mr. Nikhil Vats Bachelor in Law 2 Years Legal
11 Ms. Neelam Bachelor in Law 3 Years Legal
12 Ms. Moonu Rana Bachelor in Law 2 Years Legal
  • More than 15 other Professionally Qualified
    Support Staff

6
DOING BUSINESS IN INDIA
7
FOREIGN DIRECT INVESTMENT IN INDIA
  • AUTOMATIC ROUTE
  • APPROVAL ROUTE

8
ENTRY STRATEGY
  • JOINT VENTURE
  • WHOLLY OWNED SUBSIDIARY
  • BRANCH OFFICE
  • AGENCY

9
FORMS OF ENTERPRISES IN INDIA
INCORPORATED ENTITY
  • Private Limited Company
  • Public Limited Company

UNINCORPORATED ENTITIES
  • Branch Office
  • Liaison Office
  • Project Office
  • Partnership
  • Trust

10
TYPE OF SECURITIES
  • Equity Share
  • Preference Share
  • Debenture

11
LAWS GOVERNING BUSINESS IN INDIA
  • The Companies Act. 1956
  • Arbitration Reconciliation Act, 1996
  • The Competition Act, 2002
  • The Foreign Exchange Management Act, 1999
  • Income Tax Act, 1961
  • Central Sales Tax, 1956
  • Central Excise Act, 1944
  • Information Technology Act, 2000
  • Copyright Act, 1957
  • Geographical Indications of Goods Act, 1999
  • Indian Patents Act, 1970
  • Designs Act, 2000
  • Industrial Disputes Act, 1947
  • Workmen Compensation Act, 1956
  • Employees Provident Fund Miscellaneous Provisions
    Act, 1952
  • Consumer Protection Act, 1956

12
IMPORTANT REGULATORY AUTHORITIES FOR FOREIGN
INVESTMENT
  • Secretariat for Industrial Assistance (SIA)
  • Foreign Investment Promotion Board (FIPB)
  • The Foreign Investment Implementation Authority
    (FIIA)
  • Reserve Bank of India (RBI)
  • Registrar of Companies (RoC)
  • Securities and Exchange Board of India (SEBI)
  • Central Board of Excise and Customs (CBEC)
  • Central Board of Direct Taxes (CBDT)
  • Authority for Advance Rulings (AAR)
  • Investment Commission

13
DIRECT TAXES
  • INCOME TAX
  • DIVIDEND DISTRIBUTION TAX

14
INDIRECT TAX
  • Customs duty
  • CENVAT (excise duty)
  • Central Sales tax
  • Value added tax
  • Service tax
  • Octroi duty/entry tax
  • Stamp Duty
  • RD cess
  • Works contract tax
  • Turnover tax
  • Purchase tax
  • Secondary and higher education cess

15
INTERNATIONAL TAX TREATIES
  • Treaties with favorable jurisdictions such as
    Mauritius, Cyprus, Singapore and the Netherlands
  • India has entered double tax treaty with 79
    Countries

16
IMPORTANT HR STATUTES
TRAINING, RECRUITMENT AND SCREENING
Employment exchanges (Compulsory notification of vacancies) act, 1959
The payment of gratuity act, 1972
The apprentices act, 1961
Contract labour (regulation and abolition) act, 1970
Child labour (prohibition and regulation) act, 1986
PAY, SALARY AND BONUS
Minimum wages act, 1948
Payment of wages act, 1936
Equal remuneration act, 1976
Payment of bonus act, 1965
COND Next Slide
17
EMPLOYMET TERMS, CONDITIONS AND BENEFITS
Factories act, 1948
Shops and commercial establishments acts
Industrial employment (Standing orders) act, 1946
Maternity benefit act, 1961
SOCIAL SECURITY, INSURANCE AND COMPENSATION
Employees provident funds and miscellaneous act, 1952 (epf act)
Employees state insurance act, 1948 (esi act)
Workmens compensation act, 1923
Disputes and liabilities
Industrial disputes act, 1947
Employers liability act, 1938
18
INTELLECTUAL PROPERTY
  • Patents
  • Copy Rights
  • Trade Marks
  • Trade Secretes
  • Geographical indication of goods

19
ACCOUNTS AND AUDIT
  • Indian Accounting Standards
  • Audit and Assurance Standards
  • Guidance notes
  • Standards on internal audit
  • Opinion of expert advisory of ICAI
  • IFRS to be implemented in 2011

20
REPORTING REQUIREMENTS
21
INCOME TAX
  • Annual Tax Return
  • Quarterly withholding tax return
  • Accountant report under of transfer pricing rule
  • Tax audit report
  • Accountant report in case of MAT
  • Accountant report in case of STPI/EOU/SEZ

22
COMPANY LAW
  • Filling of annual audited financial statements
  • Filling of annual return
  • Filling of documents in case of
  • Change of Director
  • Change of Capital
  • Change of Registered Office
  • Registration of Charge

23
EXCHANGE CONTROL LAW/RBI
  • Intimation to RBI from receipt of capital
  • Intimation to RBI from the date of allotment of
    shares
  • Annual return to RBI

24
SERVICE TAX LAW
  • Monthly deposit of tax
  • Half yearly tax return
  • Refund of Service Tax within 1 year

25
STPI
  • Monthly progress report
  • Annual return
  • Filling of Softex form
  • Reimbursement of CST on half yearly basis

26
VAT/CST
  • Monthly/Quarterly return
  • Annual return

27
EXTRACTION OF EARNINGS OUT OF INDIA
  • Dividend
  • Buyback
  • Redemption

28
EXIT STRATEGY
  • Dissolution of company
  • Sale of share
  • Merger/Amalgamation
  • IPO

29
  • INCOME TAX LAW AT A GLANCE
  • IN
  • INDIA

30
INCOME TAX AT A GLANCE
  • CHARGEABILITY
  • Income arising or accruing or receiving in India
    including specified deeming income
  • TAX RULE
  • Resident Rule
  • Source Rule
  • TAX PAYER TYPE
  • Residents
  • Non Residents
  • Resident but not Ordinarily Resident
  • COND Next Slide

31
  • SCOPE
  • Worldwide Income Taxable in case of Resident
  • Indian Sourced Income Taxable in case of Non
    Resident
  • Worldwide Income except Business Income Taxable
    in case of Resident but not Ordinarily Resident
  • PERIOD
  • 12 months period from 1st April to 31st March
    (Accounting Year)
  • Law as exists in next year applicable (Assessment
    Year)
  • CLASSIFICATION AND COMPUTATION OF INCOME
  • Income is classified as below and then computed
    according to the procedure specified for each
    classification
  • SALARY
  • HOUSE PROP0ERTY
  • BUSINESS/PROFESSION
  • CAPITAL GAIN
  • OTHER SOURCES (RESIDUARY)

32
  • EXEMPTIONS AND DEDUCTIONS
  • Various specified exemptions and deductions are
    allowed based on various incentive schemes
  • MODE OF TAX PAYMENT
  • Self Assessment (at the time of filing tax
    return)
  • Advance Tax ( 3 to 4 installments on
    estimated basis)
  • TDS (deposited by buyer on
    behalf)
  • WITHHOLDING TAXES
  • Certain specified transactions are subject to
    withholding taxes
  • FILING REQUIREMENTS
  • 31st July (In case of Individual)
  • 30th Sept. (In case of corporation or non
    corporation if turnover exceeds 6 million)
  • Revised return within 1 year from end of A/Y
  • COND Next Slide

33
  • ASSESSMENT PROCEDURE
  • Accepted as such (If not selected for audit
    within six months from the end of A/Y )
  • Selected for Scrutiny (Audit)
  • TIME PERIOD FOR ASSESSMENT
  • 1 year from the end of A/Y if not selected for
    Audit
  • 2 years from the end of A/Y if selected for Audit
  • REASSESSMENT PROCEDURE
  • If income escaped taxation or wrong information
    by tax payer within 4/6 years from the end of
    A/Y
  • TIME PERIOD FOR REASSESSMENT
  • 9 months from the end of the F/Y in which notice
    is served
  • RECTIFICATION OF ORDER
  • Within 4 years from the end of the F/Y in which
    order is passed or 6 months from the end of the
    month in which rectification application is
    received
  • COND Next Slide

34
  • REVISION OF ORDER BY COMMISSIONER
  • Within 2 years from the end of the F/Y in which
    order was passed
  • REVISION OF ORDER BY COMMISSIONER IF TAX PAYER
    REQUESTED
  • Within 1 year from the end of the F/Y in which
    order was passed
  • REFUND
  • Tax payer is entitled to refund of excess tax
    deposited with interest _at_ 6 per annum
  • INTEREST
  • Interest _at_ 12 per annum for delay in filing
    return, deposit of tax etc.
  • COND Next Slide

35
  • PENALTIES
  • Maximum 300 of tax amount
  • PROSECUTION
  • Willful attempt to evade tax
  • Willful failure to file tax return
  • Willful failure to file documents and accounts
  • Falsification of books of accounts and documents
  • False statements
  • False returns
  • Willful non compliance
  • PUNISHMENT
  • Imprisonment ranges from 6 months to 7 years with
    fine or without fine subject to trial in the
    court

36
Appellant Authorities
  • There are 4 level of appellant authorities -
  • Commissioner of Income Tax (within Tax dept)
  • 2) Income Tax Appellant Tribunal (Lower Court)
  • 3) High Court
  • 4) Supreme Court of India

37
WEALTH TAX
  • IF TAXABLE WEALTH EXCEEDS RS. 3 MILLION
  • WEALTH TAX _at_ 1.03

38
INCOME TAX TABLE
Domestic Company 33.99
Foreign Company 42.23
Dividend distribution tax 16.995
Capital gains tax on exit or restructuring 0 to 42.23 (long/short term)
Withholding Taxes Nagging problems
Minimum Alternate Tax Domestic companies raised from 11.33 to 16.995 Foreign companies raised from 10.558 to 15.836
39
NEW DIRECT TAX CODE
  • TAXATION OF COMPANIES
  • Companies 25
  • Branch profit tax 15
  • GAAR Introduce
  • Treaty Override Introduced
  • Short Term/Long Term Capital gains _at_ 30
  • Residence rule for companies Place of control
    and management, wholly or partly in India, at any
    time in the year
  • Wealth tax _at_ 0.25 (basic exemption USD 10
    Millions)

40
TAX RATE COMPARISION
Corporate Income Tax Rate 30 25
Minimum Alternative Tax 15 (of book profits) 2 of gross assets
Capital Gains 0 - 40 30
Branch Profit Tax 0 15
Withholding Taxes (payments to non-residents)
Dividends 0(DDT of 15 is applicable) 0 (DDT of 15 is applicable)
Interest 10 - 40 20
Royalty 10 20 (on gross basis)
Service and Management 10 20 (on gross basis)
41
  • INTERNATIONAL TAXATION
  • AT A
  • GLANCE

42
INTERNATIONAL TAX AT A GLANCE
  • All payments in the nature of chargeable income
    subject to
  • Withholding Tax.
  • Withholding Tax rate as stated in either Treaty
    or Domestic Tax Law which is more beneficial to
    tax payer.
  • Provisions to lower Withholding Tax rate in
    Indian Tax Law.
  • Indian Party making payment of income to Non
    Resident or Business Connection or Employer
    treated as Representative Assesses (Agent).
  • Income from Permanent Establishment is always
    on Tax Authoritys Radar.
  • Underlying Tax Credit available to US
    Corporations not Individuals.

43
DOUBLE TAXATION TREATY BETWEEN INDIA USA
  • RATE
  • DIVIDEND NIL
  • INTEREST 10-15
  • ROYALTY 10 in case of use of Industrial,
    Commercial and Scientific Equipment
  • 15 if payer is Government or Specified
    Organization
  • 20 in other Cases
  • FEE FOR INCLUDED 10 in case of use of Technical
    or Consulting SERVICES Services, Ancillary
    Subsidiary to Industrial, Commercial and
    Scientific Equipment
  • 15 if payer is Government or Specified
    Organization
  • 20 in other Cases

44
TRANSFER PRICING LAW IN INDIA
45
INTRODUCTION TO TRANSFER PRICING
  • In India, Transfer Pricing regulations were
    introduced from April 1,2001
  • as a measure to curb tax avoidance.
  • Any Income arising from an international
    transaction to be computed
  • at the arms length price (ALP).
  • The Central Board of Direct Taxes has set up a
    separate cell for dealing
  • with cases of transfer pricing
  • SOURCE
  • OECD guidelines
  • US regulations and jurisprudence
  • Indian jurisprudence

46
ARMS LENGTH PRINCIPLE
  • Where an enterprise enters into transactions
    with associated
  • enterprises, in order to determine fair profit
    of that
  • enterprise, the price of the transactions should
    be compared
  • with those entered into by two independent
    enterprise under
  • uncontrolled conditions and under similar
    circumstances.

47
APPLICABILITY
  • INTERNATIONAL TRANSACTIONS
  • ASSOCIATED ENTERPRISES

48
INTERNATIONAL TRANSACTIONS
  • Purchase
  • Sale
  • Lease of tangible or intangible property
  • Provision of services
  • Lending or borrowing money or
  • Any other transaction having a bearing on the
    profits, income, losses or Assets of such
    enterprise.

49
ASSOCIATED ENTERPRISES
  • PRIMARY ASSOCIATION
  • Management/Control/Capital
  • SECONDARY ASSOCIATION
  • Direct or indirect voting power of at least 26
  • Common parent holds voting power of at least 26
    in both
  • Loan of 51 or more of value of assets
  • Guarantee of 10 or more of total borrowings
  • One appoints more than half of directions on
    board or one executive director of other
  • Common parent appoints more than half of
    directors on board or executive director in both
  • Whole dependence on use of IPRs of the other
  • Buying of bulk raw materials, Sales to one party
    etc.

50
STEPS FOR DETERMINATION OF ALP
  • STEPS INVOLVED IN THE DETERMINATION OF THE ALP
  • Identification of the International
    Transaction
  • Identification of an Uncontrolled Transaction
  • Identification and comparison of specific
    characteristics of the two transactions
    (Comparability) as per Rule 10A and 10B. Finding
    out whether differences, if any, between the two
    transactions can be reconciled/resolved
  • Ascertaining the most appropriate method
  • Determination of the arms length price by
    applying the method chosen.

51
METHODS
  • The specific methods prescribed for computing
    arms
  • length price, which are as follows
  • TRADITIONAL TRANSACTION METHOD
  • TRANSACTIONAL PROFIT METHOD

52
TRADITIONAL TRANSACTION METHOD
  • COMPARABLE UNCONTROLLED PRICE METHOD
  • Under this method, the first step is to identify
    the price charged or paid for property
    transferred or services provided in a comparable
    uncontrolled transaction. Then such price is to
    be adjusted on account of differences, which
    could materially affect the price in the open
    market, if any, between the transactions being
    compared or between the enterprises entering into
    such transaction. Such adjusted price can be
    called as arms length price computed under this
    method. This method involves comparison of prices
    both internal and external.
  • RESALE PRICE METHOD
  • Under this method, the first step is to identify
    the price at which property purchased or services
    obtained by the enterprise from an Associated
    enterprise is resold or are provided to an
    unrelated enterprise. From such resale price, the
    amount of a normal gross profit margin accruing
    to the enterprise or to an unrelated enterprise
    from same or similar transaction is to be
    reduced. The price so arrived is further reduced
    by the expenses incurred by the
  • COND Next Slide

53
  • enterprise in connection with the said
    transaction. Then such price is to be adjusted to
    take into account the functional and other
    differences, including differences in accounting
    practices, which could materially affect the
    amount of gross profit margin in the open market,
    between the transactions being compared or
    between the enterprises entering into such
    transactions. Such adjusted price can be called
    as arms length price computed under this method.
  • COST PLUS METHOD
  • Under this method, the first step is to
    determine the direct and indirect cost of
    production incurred by the enterprise in respect
    of property transferred or services provided to
    an associated enterprise. The next step is to
    determine the normal gross profit mark-up to such
    costs computed according to the same accounting
    norms of the enterprise or unrelated enterprise
    in connection with the same or similar comparable
    uncontrolled transaction. The said normal gross
    profit mark-up is to be adjusted on account of
    functional and other differences if any, which
    could materially affect such profit mark-up in
    the open market, between the transactions being
    compared or between the enterprises entering into
    such transaction. Such profit mark-up is to be
    added in the cost calculated as per the first
    step. The sum so arrived at, can be called as
    arms length price computed under this method.

54
TRANSACTIONAL PROFIT METHOD
  • PROFIT SPLIT METHOD
  • Under this method, the first step is to
    determine the combined net profit of the
    Associated enterprise arising from the
    international transaction in which the
    enterprises are engaged. After that the relative
    contribution made by each of the associated
    enterprise the combined net profit is evaluated
    on the basis of the functions performed, assets
    employed or to be employed, reliable external
    data and risks assumed by each enterprise. The
    combined net profit is then split amongst the
    enterprises in proportion of their relative
    contributions and such apportioned profit shall
    be taken into account to arrive at the arms
    length price in relation to the international
    transaction.
  • TRANSACTIONAL NET MARGIN METHOD
  • Under this method, first the net profit margin
    realized by the enterprise from an international
    transaction entered into with an Associated
    enterprise is computed in relation to costs
    incurred or sales effected or assets employed or
    to be employed or any other relevant base. Then
    the net profit margin realized
  • COND Next Slide

55
  • by the enterprise or by an unrelated enterprise
    from a comparable uncontrolled transaction is
    computed with regard to the same base. Such net
    profit margin arising in comparable uncontrolled
    transactions is to be adjusted on account of
    differences if any, which could materially affect
    the net profit margin in the open market, between
    the transactions being compared or between the
    enterprises entering into such transaction.

56
SUMMARY OF METHODS
Methods Product Comparability Functional comparability Approach Remarks
CUP Very High Medium Prices are benchmarked Very difficult to apply as very high degree of comparability required
RPM High Medium GPM (on sales) benchmarked Difficult to apply as high degree of comparability required
CPLM High High GPM (on costs) benchmarked Difficult to apply as high degree of comparability required
PSM Medium Very High Profit Margins Complex Method, sparingly used
TNMM Medium Very High Net Profit Most commonly used Method
57
SELECTION OF MOST APPROPRIATE METHOD
  • THE MOST APPROPRIATE METHOD SHALL BE SELECTED
    HAVING REGARD
  • TO THE FOLLOWING
  • The nature and class of the international
    transaction
  • The class or classes of associated enterprise
    entering into the transaction and the functions
    performed by them taking into account assets
    employed or to be employed and risks assumed by
    such enterprises
  • The availability, coverage and reliability of
    data necessary for application of the method
  • The degree of comparability existing between the
    international transaction and the uncontrolled
    transaction and between the enterprises entering
    into such transactions
  • The extent to which reliable and accurate
    adjustments can be made to account for
    differences, if any, between the transactions
    being compared and the enterprises entering into
    such transactions
  • The nature, extent and reliability of assumptions
    required to be made in application of a method
    It is provided that where more than one price is
    determined.

58
COMPARABILITY FACTORS
  • FOR COMPARING AN INTERNATIONAL TRANSACTION WITH
    AN
  • UNCONTROLLED TRANSACTION, REFERENCE SHOULD BE
    MADE TO
  • THE FOLLOWING
  • The specific characteristics of the property
    transferred or services provided in either
    transaction
  • The functions performed, taking into account
    assets employed or to be employed and the risks
    assumed, by the respective parties to the
    transactions
  • The contractual terms (whether or not such terms
    are formal or in writing) of the transactions
    which lay down, explicitly or implicitly the
    responsibilities, risks and benefits to be
    divided between the respective parties to the
    transactions
  • Conditions prevailing in the markets in which the
    respective parties to the transactions operate,
    including the geographical
  • location and size of the markets, the laws
    and government orders in force costs of labor and
    capital in the markets, overall economic
    development and level of competition and whether
    the markets are wholesale or retail.

59
TRANSFER-PRICING AUDIT
  • Limit of Rs. 5 Crores has been enhanced to Rs. 15
    Crores with effect from Financial Year 2005-06.
  • Use of data in the year the transaction takes
    place however at the time of preparation of
    documentation the assesses had access to data
    only of prior years. TPOs are seeking to rerun
    comparable search with current data.

60
ASSESMENT PROCEDURE
File tax return Accountants Report (30th September)
i
Reference to be made to TP Officer (TPO) by the Assessing Officer (AO) Compulsory Reference to be made by AO if international transaction exceed Rs 50 million
i
Notice to be issued by the TPO for calling supporting documents and evidences
i
TP Audit
i
Preparation of Draft order
i
Passing of order within 1 month from the end of the month if No Objection on the draft order by the Tax payer within 30 days or time expires for filing the objections within 30 days
i
If tax payers has objection he will file objections to Dispute Resolution Panel within 30 days from the date of draft order
i
Dispute Resolution after hearing TPO and Tax payer along with evidences will either give directions to the TPO or no directions, within 9 months from the end to the month in which the draft order is forwarded to the tax payer
i
Within 1 month from the end of the month in which direction is received, or expiry of 9 months whichever is earlier, the TPO will pass the final order in conformity with the directions of the Dispute Resolution Panel
i
Based on results of the above mentioned procedure Assessing Officer will pass the order
61
REPORTING REQUIREMENTS
  • Every tax payer entering into international
    transaction to obtained an accountant report in
    prescribed form i.e. Form 3CEB.
  • Every accountant report to be submitted on or
    before the due date for filing tax return
  • Accountant report contain the following
    information
  • Contains summary of international transaction
  • Contains details of tax payer
  • Contains method employed to determine ALP

62
DOCUMENTATION
ENTITY RELATED PRICE RELATED TRANSACTION RELATED
Profile of industry Profile of group Profile of Indian entity Profile of associated enterprises Transaction terms Functional analysis (functions, assets and risks) Economic analysis (method selecting, comparable benchmarking) Forecasts, budgets, Agreements Invoices Pricing related correspondence (letters, emails etc.)
63
PENALTY
DEFAULT NATURE OF PENALTY
In case of a post inquiry adjustment, there is deemed to be a concealment of income 100 300 of tax on the adjusted amount
Failure to maintain documents 2 of the value each international transaction
Failure to furnish documents 2 of the value each international transaction
Failure to furnish accountants report Rs. 100,00
64
KEY ISSUES/CONTROVERSY
  • Use of secret comparables not prohibited
  • Selection of time period
  • Availability of corporate data
  • Limited guidance on adjustment methodology
  • Avoid loss making companies and negative net
    worth
  • Circular interferes with the judicial discretion
    of TPO
  • No safe harbor clause provisions
  • No advance pricing agreement provision
  • Use of current data rather than data available
    up-to the date of filing of Tax return
  • No significant legal precedents on Transfer
    pricing matters as yet
  • No use of earlier years data

65
RECENT EXPERIENCES/TAKE-AWAY
  • Adjustment allowed
  • Working capital
  • Risks
  • Growth
  • IP
  • Under utilization of capacity
  • Difference in accounting policies
  • Loss making comparables accepted except
    continuous loss making companies
  • Independent comparable having related party
    transactions (more than 15) not accepted
  • OECD and US Guidelines on Transfer Pricing
    accepted
  • Emphasis on FAR analysis than other economic
    factors
  • COND Next Slide..

66
  • Segmental results to be considered
  • Transfer Pricing not an exact science and hence
    reasonable presumption and approximation accepted
  • Multiple year data generally not accepted
  • Transfer Pricing law in India at very infancy
    stage
  • Start-up company and low net worth companies not
    accepted
  • In TNMM, comparability at broader level in terms
    of product accepted

67
DOMESTIC LAW DISPUTE RESOLUTION PROCESS
Transfer Pricing Officer
Dispute Resolution
Panel
Appellate Tribunal
High Court
Supreme Court
Order passed within 1 month from end of the month
in which direction from Dispute Resolution
Panel is received or end of 9 month from the end
of month in which draft order is forwarded.
  • Final fact finding authority
  • No specific time limit
  • Generally order passed within 2 4 years from
    filing of appeal
  • Revenue can also go on appeal if Commissioner
    decides in favor of taxpayer
  • Final fact finding authority
  • No specific time limit
  • Generally order passed within 2 4 years from
    filing of appeal
  • Revenue can also go on appeal if Commissioner
    decides in favor of taxpayer

Direction to be issued within 9 month from the
end of the month in which objection are forwarded
68
INTERNATIONAL DISPUTE RESOLUTION PROCESS (MUTUAL
AGREEMENT PROCEDURE PROCESS)
Overseas Taxpayer
Overseas Competent Authority
Indian competent Authority
India Tax administration
  • Overseas Taxpayer can invoke CA proceedings in
    case there is double taxation or taxation not in
    accordance with the tax treaty
  • Technically, application is possible even before
    assessment is made.
  • If overseas CA consider the application
    appropriated, application forwarded to the Indian
    CA
  • CAOVERSEAS CA could request Taxpayer for
    additional information
  • Indian CA ON RECEIE OF map REQUEST FROM OVERESAS
    CA could consider the same for discussion
  • Additional information could be requested before
    the cases in expected
  • In case the matter is resolved between the CAs
    and accepted by the Taxpayer, the same is
    communicated to the Tax Officer
  • Overseas and India CAs would initiate negotiate
    negotiation and attempt to reach an amicable
    resolution
  • CAs may set up certain procedures/guidelines
    which they will adhere to during the negotiation
    process
  • In case the CAs reaches a resolution, the
    proposed agreement should be communicated to the
    Taxpayer for his acceptance.
  • Taxpayer has option not to accept the agreement
    in case it is detrimental taxpayer may seek
    correlative relief in the overseas jurisdiction

69
EVALUATION OF ALTERNATIVE DISPUTE RESOLUTIO
OPTIONS
Criteria Map Appeal
Time frame Generally 1-2 years Can range from 2 to 20 years, depending upon level
Approach More scope for negotiation /compromise, CAs could agree on a middle path Legalistic approach, no negotiations
Taxpayer involvement At the discretion of CA Significant involvement
Binding nature Binding on CA, Taxpayer need mot accept if detrimental can continue with domestic tax law appeal Binding, but sequential appeals ca be made to higher judicial authorities.
Double tax mitigation Possibility of avoiding double tax impact through correlative relief Double tax exposure if appeal is against taxpayer, correlative relief to be separately pursued.
Collection of taxes MOU for suspending collection of taxed (with US) STAY FO DEMAND AT THE DISCRETIO OF THE Tax officer and Appellate Authorities
Finally Greater change of reaching finality, decision of CA binding on Tax officer Tax officer can prefer appeal if first-level appeal is in Taxpayers favor
Experience Inadequate experience in TP, but better general appreciation of international tax issues n/Limit TP experience at this stage
Coverage Possibility of covering even subsequent years on the basis of anticipated adverse results Would need t await assessment order for ach year before filing appeal.
70
WHAT WE DO FOR QUARK SOFTWARE
  • WE OFFER THE FOLLOWING
  • REPRESENTATION SERVICES
  • Income Tax
  • International Tax
  • Transfer Pricing
  • Appeal
  • REPRESENTATION SERVICES
  • Service Tax
  • Foreign Investment Promotion Board
  • Department of Company Affairs
  • Exchange Control Department
  • STPI
  • COND Next Slide.

71
  • REVIEW SERVICES
  • AUDIT ASSURANCE SERVICES
  • Management audit
  • Special audit
  • CERTIFICATION
  • COMPLIANCE PLANNING SERVICES
  • OPINIONS
  • CONSULTATIONS ADVISORY SERVICES
  • SIGNATORY SERVICES

72
  • TAX CALENDER

73
SL NO. NAME OF COMPANY NAME OF COMPANY TYPE AUTHORITY AUTHORITY STATUS AS ON 16.11.2010
A QUARK SYSTEMS PVT. LTD QUARK SYSTEMS PVT. LTD QUARK SYSTEMS PVT. LTD QUARK SYSTEMS PVT. LTD QUARK SYSTEMS PVT. LTD QUARK SYSTEMS PVT. LTD
1 A/Y 2004-05 Appeal- Department Appeal- Department Third Appellate Authority (High Court) Date not fixed as we are not confirmed whether dept. will go in appeal Date not fixed as we are not confirmed whether dept. will go in appeal
2 A/Y 2005-06 Appeal- Department Appeal- Department Second Appellate Authority (ITAT) Case adjourned to 08.12.2010 Case adjourned to 08.12.2010
3 A/Y 2006-07 Appeal Company Appeal Company Dispute Resolution Panel Order Received Order Received
4 A/Y 2007-08 Scrutiny/Audit Scrutiny/Audit Tax Officer Case is fixed for 17.11.2010 Case is fixed for 17.11.2010
5 A/Y 2007-08 Scrutiny/Audit Scrutiny/Audit Transfer Pricing Officer Order received Order received
6 A/Y 2008-09 Scrutiny/Audit Scrutiny/Audit Tax Officer Case is fixed for 17.11.2010 Case is fixed for 17.11.2010
7 A/Y 2009-10 Scrutiny/Audit Scrutiny/Audit Tax Officer Case is fixed for 17.11.2010 Case is fixed for 17.11.2010
B QUARK MEDIA HOUSE INDIA PVT. LTD QUARK MEDIA HOUSE INDIA PVT. LTD QUARK MEDIA HOUSE INDIA PVT. LTD QUARK MEDIA HOUSE INDIA PVT. LTD QUARK MEDIA HOUSE INDIA PVT. LTD QUARK MEDIA HOUSE INDIA PVT. LTD
1 A/Y 2005-06 Appeal- Department Appeal- Department Second Appellate Authority (ITAT) Case is fixed for 08.12.2010 Case is fixed for 08.12.2010
2 A/Y 2006-07 Appeal- Department Appeal- Department Second Appellate Authority (ITAT) Hearing is under progress Hearing is under progress
3 A/Y 2007-08 Scrutiny/Audit Scrutiny/Audit Tax Officer Case is fixed for 22.11.2010 Case is fixed for 22.11.2010
4 A/Y 2007-08 Scrutiny/Audit Scrutiny/Audit Transfer Pricing Officer Order received Order received
5 A/Y 2008-09 Scrutiny/Audit Scrutiny/Audit Tax Officer Case is fixed for 22.11.2010 Case is fixed for 22.11.2010
6 A/Y 2008-09 Scrutiny/Audit Scrutiny/Audit Transfer Pricing Officer Documents Submission submitted Documents Submission submitted
7 A/Y 2009-10 Scrutiny/Audit Scrutiny/Audit Tax Officer Case is fixed for 22.11.2010 Case is fixed for 22.11.2010
74
C QUARK COMMERCE INDIA PVT. LTD QUARK COMMERCE INDIA PVT. LTD QUARK COMMERCE INDIA PVT. LTD QUARK COMMERCE INDIA PVT. LTD
1 A/Y 2005-06 Appeal- Department Second Appellate Authorities (ITAT) Case is fixed for 08.12.2010
2 A/Y 2006-07 Scrutiny/Audit First Appellate Authority (CIT-A) Hearing is under progress
3 A/Y 2008-09 Scrutiny/Audit Tax Officer Date not fixed
4 A/Y 2008-09 Scrutiny/Audit Transfer Pricing Officer Documents arguments submitted
5 A/Y 2009-10 Scrutiny/Audit Tax Officer Company merged
d QUARK INDIA PVT. LTD QUARK INDIA PVT. LTD QUARK INDIA PVT. LTD QUARK INDIA PVT. LTD
1 A/Y 2004-05 Appeal- Department Second Appellate Authorities (ITAT) Hearing under progress
2 A/Y 2008-09 Scrutiny/Audit Tax officer Case is fixed for 25.11.2010
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-26, Chandigarh 160 019Tel- 91-172-2790366,
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