Task force to issue report on new direct tax law

The newly reinstated task force – which was reconstituted in order to review the Income Tax (IT) Act and draft a new direct tax law – will submit its report to the government by 28 February 2019.(1)

PAN applications in financial transactions

Section 139A of the IT Act requires a resident person (other than an individual) entering into a financial transaction which exceeds Rs250,000 to apply for a permanent account number (PAN). Further, the managing director, director, partner and trustee of such person must also apply for a PAN. The rules set out in this regard provide that PAN applications should be made by the 31 May immediately following the financial year in which such a financial transaction is entered into.(2)

Amendments to India-China treaty

The Indian government has signed a protocol with the Chinese government, amending the India-China tax treaty. The protocol incorporates changes pursuant to Base Erosion and Profit Shifting (BEPS) Action Plan reports (both minimum standards and those agreed by the two parties) and exchange of information, as per the latest international standards.(3)

Rulings under BEPS Action Plan 5

The minimum standard under BEPS Action Plan 5 requires participating jurisdictions to undertake compulsory spontaneous exchanges of information. As part of this transparency framework, India has received information from other jurisdictions. The Central Board of Direct Taxes (CBDT) has issued instructions regarding how to deal with such rulings.

Type of ruling

When ruling can be used

Considerations

Preferential regimes

Such rulings can be used where the ultimate parent or immediate parent of the taxpayer receiving the ruling, or a related party with which a foreign resident has entered into a transaction under which preferential treatment is granted, is resident in India.

The goal of this type of ruling is to identify and assess the extent of the economic activity actually reported in India and whether the income offered in India is commensurate with the same.

Unilateral advance pricing agreements (APAs) or other cross-border unilateral rulings in respect of transfer pricing (covering future transfer pricing methodology or future pricing or profit apportionment structures) and cross-border rulings providing for a downward adjustment of taxable profits

These rulings can be used where the ultimate parent or immediate parent of the taxpayer receiving the ruling, or a related party with which a foreign resident has entered into a transaction that is covered by an APA or cross-border ruling relating to downward adjustment, is resident in India.

These rulings are used to ensure that:

  • there are no discrepancies in how two ends of a transaction are priced; and
  • no profits go untaxed.

Permanent establishment rulings deciding on the existence or absence of a permanent establishment or attribution of profits to such establishment

These rulings can be used where the ultimate or immediate parent of the taxpayer receiving the ruling, or the taxpayer's head office, is resident in India or permanently established in India.

Information from these rulings is used to assess the appropriate global profit of the Indian entity.

Related party conduit rulings (arrangements or structures using transparent entities, where interest paid is claimed as deduction and corresponding interest income goes untaxed)

Such rulings can be used where the ultimate parent or immediate parent of the taxpayer receiving the ruling, or any related party making payments to a conduit or ultimate beneficial owner of payments to a conduit, is resident in India.

Information from these rulings is used to assess the appropriate profit of the Indian entity.

The instructions further state that action may be taken on a case-by-case basis. The information received is subject to confidentiality requirements of tax treaties with the respective jurisdiction.(4)

For further information on this topic please contact Pranay Bhatia at BDO in India by telephone (+91 22 3332 1600) or email (pranaybhatia@bdo.in). The BDO in India website can be accessed at www.bdo.in.

Endnotes

(1) 26 November 2018 press release.

(2) Notification GSR 1128(E), 82/2018 (F 370142/40/2016-TPL (PART-I), 19 November 2018.

(3) 26 November 2018 press release.

(4) Instruction 6/2018, 22 November 2018.

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