India budget update: top points for multinationals

by DLA Piper
Contact

In an effort to jump-start a weak economy, the Indian government’s Union Budget adopts several new measures while taking a balanced approach.

These are the government’s key areas of focus:

  • Reduce tax litigation and the transfer pricing challenges affecting foreign multinationals by introducing rollback provisions via advance pricing arrangements
  • Boost infrastructure investment
  • Introduce a tax framework for REITS and infrastructure funds
  • Create a roadmap for implementation of the goods and services tax

Below are the key tax changes that may affect foreign multinationals with operations in India.

GENERAL TAX POLICY PROPOSALS

Leading up to the release of the Budget, there was anticipation the government would put into place measures to assuage foreign investors dealing with the fallout of the Vodafone case with respect to indirect transfers of assets having a “substantial” connection to India.

While the budget included no new provisions in this regard, the government has created a new committee to review any new cases under this provision.

Several administrative and legislative measures were proposed to reduce direct tax litigation:

  • All resident taxpayers can obtain an Advance Ruling in respect of their income-tax liability above a defined threshold.
  • The Authority for Advanced Rulings will be strengthened by constituting additional benches.
  • The scope of the Settlement Commission will be enlarged so that taxpayers can approach the commission to settle disputes.
  • The government will set up a high-level committee to interact with trade and industry on a regular basis to ascertain areas requiring clarity in tax laws.
  • Several taxpayer-friendly changes were proposed to the transfer pricing regulations.

The Direct Taxes Code - the new income tax code - will be reviewed in its present shape.

DIRECT TAX CHANGES

  • The tax rate and education surcharges remain unchanged.
  • Effective October 1, 2014, dividends distributed by domestic companies and mutual funds will be grossed up for the purpose of computing dividend distribution tax. The new effective rate based on the gross calculation will be 20.47 percent.
  • Unlisted security and units (other than equity-oriented mutual funds) will be regarded as short-term capital assets if held up to 36 months.
  • Long-term capital gains from transfer of units of mutual funds, other than equity-oriented funds, will be taxed at 20 percent, compared to the present levy of 10 percent.
  • For the first time, REITs and infrastructure investment trusts will be permitted in accordance with the guidelines of the Securities and Exchange Board of India.  They shall enjoy tax pass-through status, except in respect of capital gains on disposal of assets.
  • The sunset date for power-generating, distributing or transmitting companies to claim a tax holiday has been extended to March 31, 2017.

INDIRECT TAX CHANGES

  • No announcement has been made on a timeline for implementation of a goods and services tax.  All pending issues will be resolved during the year.
  • The general rates for customs, excise and service tax remain unchanged.
  • Excisable goods sold at a price below manufacturing cost and profit to be assessed on the basis of ”transaction value” for excise duty, if no additional consideration flows directly or indirectly to the seller.
  • The benefit of advance ruling is extended to include resident private limited companies.
  • The sale of space/time on media, such as Internet, films and billboards, will be subject to service tax.

TRANSFER PRICING

In order to reduce transfer pricing litigation in India, the government had introduced an Advance Pricing Agreement (APA) regime and safe harbor rules.

The budget introduces rollback provisions for the APA, wherein taxpayers and APA authorities can agree to the same arm's length margin or the methodology for the prior four years as an existing APA.

Furthermore, the definition of a “deemed international transaction” has been amended to include transactions between “resident entities” if there exists a prior agreement or if the terms of the transaction are determined between an unrelated resident entity and the offshore associated enterprise of the Indian entity. This could create additional compliance challenges for many multinationals.

Amendments are also proposed to introduce a “range” concept for determination of the arm's length price along with the use of multiple year data to assist taxpayers who find it difficult to benchmark a transaction using current data that is not available in the public domain.

NON-TAX PROVISIONS

  • The Prime Minister’s vision to develop 100 smart cities as satellite towns of larger cities, by modernizing the existing mid-size cities, has been unveiled with a reservation of INR70.60 billion.
  • Within the next six months, technology to facilitate electronic travel authorization (e-Visa) to identified countries will be introduced in a phased manner at nine airports.
  • A national multi-skill program called Skill India will be launched, along with several other programs.
  • An eBiz platform for all central government departments and ministries was announced, which is expected to create a business and investor friendly ecosystem in India bymaking all business and investment-related clearances and compliances available on one 24/7 portal, with an integrated payment gateway.
  • The Special Economic Zone program is to be revived in order to turn it into an effective instrument of industrial production, economic growth, export promotion and employment generation. SEZs will be developed in Kandla and the Jawaharlal Nehru Port Trust.
  • Sixteen new port projects are proposed, and a program for developing new airports in Tier I and Tier II cities will be launched.
  • A consultation is to be completed on the enactment of the Indian Financial Code and on the reports of the Financial Sector Legislative Reforms Commission.
  • Indian companies are to adopt the new Indian Accounting Standards in line withinternational financial reporting standards – for Indian companies, this process will be voluntary for the financial year 2015-2016 and mandatory in FY 2016-2017.
  • The Reserve Bank of India will create a framework for licensing small banks and other differentiated banks. The government, in close consultation with the RBI, will put in place a modern monetary policy framework.
  • The Budget includes a proposal to revamp the ADR/GDR and IDR regimes and introduce a more liberal Bharat Depository Receipt.
  • An Indian Customs Single Window Project to facilitate trade will be implemented.
  • The Budget aims to expedite the implementation of the goods and services tax. We should expect a new draft of the GST sometime this year.
  • The Budget gives a boost to the FDI policy in the larger interest of the Indian economy in these ways:
    • The composite cap of FDI in defense manufacturing will be raised to 49 percent
    • The composite cap of FDI in the insurance sector will be raised to 49 percent
    • Manufacturing units with FDI that are under the automatic route will be allowed to sell their products through retail, including e-commerce platforms, without any additional approval.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© DLA Piper | Attorney Advertising

Written by:

DLA Piper
Contact
more
less

DLA Piper on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.
Feedback? Tell us what you think of the new jdsupra.com!