pacific rim tax conference 2017

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Government Panel #2: IndiaPacific Rim Tax Conference 2017Pullman San Francisco Bay March 2017


India PanelistsRajat BansalJoint Secretary, FT & TR II, Ministry of Finance, IndiaAlpana SaksenaChief Tax Officer, Oracle (India)Mukesh ButaniManaging PartnerSlide 1


Indian Tax Environment Moral crusade against black moneyIncome disclosureDemonetizationExchange of informationIntroduction of anti-abuse measuresGAARTreaty changesThin capitalizationBEPSMost BEPS action points vindicate Indias positionHowever, challenges to MNEs could multiplyUnilateral action equalization levyNo mandatory dispute resolutionMisalignment with key OECD standards (arbitration)

Slide 2


India Transfer Pricing Litigation - Landscape2016 Risk based audits and alignment with BEPS ActionsSlide 3


APA Recent DevelopmentsAPA transactions concludedAPAs concluded - 141130 Unilateral+11 Bilateral APAs**As on March 7, 2017Services transactions (e.g. IT/ITeS) is one of the most litigated sector in the area of Transfer Pricing and hence majority of the APA applications relate to such transactionsSlide 4


APA Experiences Outcomes & Other issuesSlide 5


Secondary Adjustment GlocalisationOECD/ Globally prevalent mechanism to implement Secondary Adjustment Elective process vs. mandatory approachHigh courts have struck down secondary adjustments due to no statutory mandate (Vodafone / Shell)Primary adjustments accepted by taxpayer (self adjustment, audit/ appellate decisions, APA, MAP, Safe Harbor)Excess Money has be repatriated to India financial statements to be alignedDeemed to be advance and thereby interest to be imputedImplications on ongoing auditsRisk of double taxation - Article 9 of Model Tax Convention does not deal with the issue of secondary adjustment and it is a matter of domestic law of contracting statesPayment of management fees, AMP transaction, Free of cost transactions?Order by Supreme Court deemed acceptance?Financial hardship of AE?Slide 6


Secondary Adjustment ImplicationsConsider an elective approachClarify prospective applicabilityFactor in congruency with the exchange control / VATClarify whether interest would accrue from the date of transaction Not mandate entry in the books of the Related partyIndia should Fin 48 provisions provision for tax need to account secondary adjustmentsTransactions where indemnity is involvedCompelling case for MAP / bilateral APAs to avoid double taxation Plan transfer price prior to closing financial statements than making self adjustment in the tax return

Tax payers need to watch out forSlide 7


Interest Limitation BEPS AlignmentProvisionsBEPS Action Plan 4Section 94BApproachRecommend Interest to EBITDA ratio (10% -30%) and supplements worldwide group ratio ruleInterest to EBIDTA ratio of 30%Threshold forapplicationRecommended, amount not specifiedInterest payments must exceed INR 10 MillionCarry forward ofdisallowed interestDiscussed but period not specifiedAllowed for 8 yearsDeemed interest fromAENot specifically covered, however guarantee fee is considered as interest equivalentRecognized deemed interest from AE based on guarantee/ money deposit by borrowers AE with LenderExclusionsDiscussed need of specific rules for banking and insurance companiesExcludes banking and insurance companies

Slide 8


Tax policy agenda 2017 and beyondComparability issues and functional issues getting sorted outUse of Profit Split Method Marketing intangibles / Location savingsProfit attribution principles lack of clarity on single entity vs global formulatory approachCommissionaire agency PE issuesWithholding tax on software paymentsIndia MLI landscape treaty interplay including grandfatheringIndia aligning to BEPS / global standardsSlide 9




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