Significant Budget Highlights 2016-17- International Taxation
1. Increase in Surcharge
Surcharge is increased from 12% to 15% in case of non-resident individuals
2. Exemption in respect of certain activity related to diamond trading in "Special Notified Zone". -Exemption u/s 9(1)(i) to Foreign Mining Companies through or from the activities which are confined to display of uncut and unassorted diamonds in a Special Zone notified by the Central Government in the Official Gazette in this behalf
Earlier, the activity of Foreign Mining Companies (FMC) of mere display of rough diamonds even with no actual sale taking place in India may lead to creation of business connection in India of the FMC making it taxable u/s 9(1)(i) of the Income Tax Act, 1961.
In order to facilitate the FMCs to undertake activity of display of uncut diamond (without any sorting or sale) in the special notified zone, it is proposed to amend section 9 of the Act to provide that in the case of a foreign company engaged in the business of mining of diamonds, no income shall be deemed to accrue or arise in India to it through or from the activities which are confined to display of uncut and unassorted diamonds in a Special Zone notified by the Central Government in the Official Gazette in this behalf.
This amendment will take effect retrospectively from 1stApril, 2016 and will accordingly apply in relation to assessment year 2016-17 and subsequent assessment years.
3. Exemption u/s 10(48A) in respect of income of Foreign company from storage and sale of crude oil stored as part of strategic reserves.- Income accruing or arising to a foreign company on account of storage of crude oil in a facility in India and sale of crude oil therefrom to any person resident in India shall not be included in the total income on fulfilment of certain conditions
Exemption is to encourage foreign national oil companies (NOCs) and multinational companies (MNCs) storing and selling crude oil from outside India to build up strategic oil reserves.
Thus it is proposed that any income accruing or arising to a foreign company on account of storage of crude oil in a facility in India and sale of crude oil therefrom to any perso resident in India shall not be included in the total income, if, -
i. such storage and sale by the foreign company is pursuant to an agreement or an arrangement entered into by the Central Government or approved by the Central Government; and
ii. having regard to the national interest, the foreign company and the agreement or arrangement are notified by the Central Government in this behalf.
Since the storage of oil is expected to begin in the current financial year, this exemption would be available from the previous year 2015-16, i.e. assessment year 2016-17.
4. Implementation of POEM based residence rule deferred for 1 year and applicable from AY 2017-18- It is proposed to defer the applicability of POEM based residence test by one year It is also proposed to provide a transition mechanism for a company which is incorporated outside India and has not earlier been assessed to tax in India.
Reasons for such deferment
- A company may be claiming to be a foreign company not resident in India but in the course of assessment, it is held to be resident based on POEM being in fact in India.
- This determination would be well after closure of the previous year and it may not be possible for the company to undertake many of procedural requirements relating to
o Advance tax payment,
o applicability of TDS provisions,
o computation of total income,
o set off of losses a
o manner of application of transfer pricing regime
o issues of computation of depreciation also arise when in earlier years it has not been subject to computation under the Act.
- This may be due to absence of above requirements under tax laws of country of incorporation of such company.
5. Amendment in section 206AA - Exemption from requirement of furnishing PAN to certain non-resident- No higher withholding tax if non-resident does not have PAN but furnishes an alternative document
It is proposed to amend the said section 206AA so as to provide that the provisions of this section shall also not apply to a non-resident, not being a company, or to a foreign company, in respect of any other payment, other than interest on bonds, subject to such conditions as may be prescribed. This amendment will take effect from 1st June, 2016.
6. Non-Applicability of Minimum Alternate Tax (MAT) on foreign companies for the period prior to 01.04.2015 subject to conditions
Vide Finance Act, 2015 of the provisions of section 115JB were amended to provide that in case of a foreign company any income chargeable at a rate lower than the rate specified in section 115JB shall be reduced from the book profits and the corresponding expenditure will be added back.
However, since this amendment was prospective w.e.f. assessment year 2016-17, the issue for assessment year prior to 2016-17 remained to be addressed.
Thus, it is proposed to provide that with effect from 01.04.2001, the provisions of section 115JB shall not be applicable to a foreign company if -
(i) the assessee is a resident of a country or a specified territory with which India has DTAA u/s 90(1) or the Central Government has adopted any agreement u/s 90A(1) and the assesse does not have a permanent establishment in India in accordance with the provisions of such Agreement; or
(ii) the assessee is a resident of a country with which India does not have DTAA and the assessee is not required to seek registration under any law for the time being in force relating to companies.
This amendment is proposed to be made effective retrospectively from the 1stday of April, 2001 and shall accordingly apply in relation to assessment year 2001-02 and subsequent years.
7. Clarification regarding the definition of the term 'unlisted securities' for the purpose of Section 112 (1) (c)- In case of non-resident long-term capital gains arising from the transfer of a shares of private company, shall be chargeable to tax @ 10 per cent
Earlier, in case of non-resident if unlisted shares are transferred, the longterm capital gains is taxable @ 10% from AY 2013-14. A view has been taken by the courts that shares of a private company are not "securities".
Thus, with a view to clarify the position so far as taxability is concerned, it is proposed to amend the provisions of secion 112(1)(c) so as to provide that long-term capital gains arising from the transfer of shares of private company, shall be chargeable to tax @ 10 per cent. These amendments are proposed to be made effective from the 1st day of April, 2017 and shall accordingly apply in relation to assessment year 2017-18 and subsequent years.
8. Proposed Amendment in section 92CA(3) -Extension of time limit to Transfer Pricing Officer (TPO) in certain cases to 60 days if the time available to the TPO for making an order is less than 60 days
It is proposed to amend sub-section (3A) of section 92CA to provide that in following situations, if the time available to the TPO for making an order after excluding the time for which assessment proceedings were stayed or the time taken for receipt of information, as the case may be, is less than 60 days, then such remaining period shall be extended to 60 days.
- where assessment proceedings are stayed by any court or
- where a reference for exchange of information has been made by the competent authority,
The amendment will take effect from 1st day of June, 2016.
9. Insertion of new section 194LBC- TDS will be deducted on any Income to non-resident individual or foreign company in respect of investment in securitisation trust.
Where any income is payable to an investor, being a non-resident individual or a foreign company, in respect of an investment in a securitisation trust specified in clause (d) of the Explanation occurring after section 115TCA, the person responsible for making the payment shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon, at the rates in force.
10. Amendment in section 194LBB- Tax is required to be deducted at the rates in force, where the payee is a non-resident (not being a company) or a foreign company
Earlier, the tax was required to be deducted @ 10% if a business trust distributed any income referred to in section 115UB (not being business income of the nature referred to in section 10(23FBB)) to its unitholders.
Section 194LBB is proposed to be amended to provide that :
Tax is required to be deducted:-
(i) 10%., where the payee is a resident;
(ii) at the rates in force, where the payee is a non-resident (not being a company) or a foreign company.”
11. Insertion of Chapter VIII - EQUALISATION LEVY- Equalisation levy at the rate of 6% of the amount for any specified service received by a non-resident from a resident person and non-resident having PE in India
There shall be charged an equalisation levy at the rate of 6% of the amount of consideration for any specified service received or receivable by a person, being a non-resident from––
(i) a person resident in India and carrying on business or profession; or
(ii) a non-resident having a permanent establishment in India.
No such levy shall be made if the aggregate amount of consideration for specified services received or receivable by a the above mentioned non-resident does not exceed 1 lakh rupees in any previous year.
“Specified service” MEANS
a. online advertisement,
b. any provision for digital advertising space or
c. any other facility or service for the purpose of online advertisement AND INCLUDES
d. any other service as may be notified by the Central Government in this behalf;
Key points to be noted:-
a. Exemption in section 10- In order to avoid double taxation, it is proposed to provide exemption under section 10 of the Act for any income arising from providing specified services on which equalisation levy is chargeable.
b. Disallowance if Equalisation levy not deducted and deposited u/s 40(a)(ib) - It is further proposed to provide that the expenses incurred by the assessee towards specified services chargeable under this Chapter shall not be allowed as deduction in case of failure of the asseseee to deduct and deposit the equalisation levy to the credit of Central government.
c. Deposit of Equalisation levy - The equalisation levy so deducted during any calendar month shall be paid by every assessee to the credit of the Central Government by the 7th day of the month immediately following the said calendar month.
The further provisions in relation to this chapter are provided in detail in Finance Bill 2016.
This Chapter will take effect from the date appointed in the notification to be issued by the Central Government.
12. Amendment in 3rd Proviso to Section 48
Forex gain on redemption of rupee denominated bond of an Indian company shall be ignored for the purposes of computation of full value of consideration under this section
13. Amendment in Section 92D
Proviso to section 92D(1) is inserted wherein person, being a constituent entity of an international group, shall also keep and maintain such information and document in respect of an international group as may be prescribed.
Sub-section 4 to section 92D inserted wherein it is provided that the person referred in the above mentioned section shall furnish the information and document referred to in the said proviso to the authority prescribed under sub-section (1) of section 286, in such manner, on or before the date, as may be prescribed.”
Constituent entity is defined u/s 286
14. Amendment in Section 271AA
If any person fails to furnish the information and the document as required under 92D(4) the prescribed income-tax authority referred to in the said sub-section may direct that such person shall pay, by way of penalty, a sum of 5 lakh rupees.
15. BEPS action plan - Country-By-Country Report and Master file
The OECD report on Action 13 of BEPS Action plan provides for revised standards for transfer pricing documentation and a template for country-by-country reporting of income, earnings, taxes paid and certain measure of economic activity. India has been one of the active members of BEPS initiative and part of international consensus.
In order to implement the international consensus, it is proposed to provide a specific reporting regime in respect of country by country reporting and also the master file. It is proposed to include essential elements in the Act while remaining aspects can be detailed in rules.