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Loophole Games

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Book Details

General Contents

Preface v
About the Author vii
Detailed Contents xi
Introduction: “Don’t be Evil� 1

Part I: Profit Suppression

1. Deferral of Revenue 13
2. Exploiting the Mercantile System of Accounting 20
3. Manipulating Segmental Accounts 28
4. SPV and JDA Structures 35
5. Characterisation of Revenue as Capital Receipt 45
6. Rate Arbitrage 51

Part II: Gain Suppression

7. Avoiding Tax through Capital Receipts 63
8. Capital Loss Harvesting 75
9. Structuring through Non-compete Fees 81
10. Bonus Stripping 89

Part III: Profit Shifting

11. Intra-Group Services 97
12. Thin Capitalisation 108
13. IP Migration Strategies 115
14. Cost Sharing Arrangements Used for Tax Avoidance 127
15. Restructuring into a Contract Manufacturer 133
16. Structuring of Sourcing and Procurement Activities 145
17. The Dummy’s Guide to Structuring 153

Part IV: Base Erosion

18. Permanent Establishment Manipulations 167
19. Taxing the Cloud 179
20. Structuring of OTT Business 188
21. Circumventing the Equalisation Levy 194
22. Migrating HNWIs and Professionals 206

Part V: Sham Transactions

23. Use of Third Party Intermediaries 217
24. Colouring Loans as Finance Lease 224
25. Employer-Employee Collusion 235
26. Tax Avoidance through Merger & Acquisition 243
27. Saving on Dividend Tax 256
28. More sham characterisations 269

Part VI: Trends in Blatant Evasion

29. Shell Companies 279
30. Tax Evasion through Stock Exchanges 294
31. Under-Invoicing and Over-Invoicing 308
32. Hawala 318
33. Tax Havens 349
34. Exchange of tax information 366

Detailed Contents

Preface v
About the Author vii
General Contents xi
Introduction: “Don’t be Evil�

Part I: Profit Suppression

1. Deferral of Revenue �
  • Booking revenue as advance
 14
  • Delhi High Court catches revenue deferral strategy of Ansal Builders
 15
  • Recognising revenue on project completion
 18
2. Exploiting the Mercantile System of Accounting 20
  • Scheme: Related party payments followed by write off
 20
    • Validity of the scheme
 21
    • Litigation risk in the scheme
 22
  • Scheme: Exploiting loopholes in accounting standards
 23
    • Validity of the scheme
 24
    • Case of Ballast Nadam Dredging
 25
    • Case of Consolidated Construction Consortium Ltd
 26
3. Manipulating Segmental Accounts 28
  • Transfer pricing analysis of segmental P&L
 29
  • Mispricing transactions with LTUs
 31
  • Overpricing expenses on a specific activity to claim greater deduction
 34
4. SPV and JDA Structures 35
  • Using SPVs to defer capital gains tax
 35
    • Tax incidence
 36
    • Implications under GAAR
 37
  • Use of SPV to avoid capital gains
 38
    • Validity of the model
 40
  • JDA route to tax deferment
 42
    • JDA and accommodation entries
 44
5. Characterisation of Revenue as Capital Receipt 45
  • Colouring remuneration as compensation for damage to capital assets
 47
  • Characterisation of sale consideration as compensation for loss of business
 48
  • How India Today’s editor availed of a tax-free reward
 48
  • Taxability of capital receipts after introduction of Section 56(2)(x)
 50
6. Rate Arbitrage 51
  • Economics of dual tax rate regime
 51
  • Standard deductions on income from house property
 54
  • Royalty income from abroad
 55
  • Colouring business income as capital gains
 56
  • Exploiting presumptive taxation system
 57
  • Misusing regime for new manufacturing companies
 59

Part II: Gain Suppression

7. Avoiding Tax through Capital Receipts 63
  • Extinguishment of rights
 64
  • Case of land aggregators
 64
  • Using self-generated intangible assets to avoid capital gains
 65
  • Carbon credits
 71
  • Sham transactions involving capital receipts
 73
  • Generating loss in related party transactions
 75
8. Capital Loss Harvesting 75
  • Advanced methods of generating capital loss
 76
  • When the Jindal Group lost on loss
 78
  • Case of Vishishth Chay Vyapar
 79
  • Case of AAA Portfolios
 80
  • Characterisation issues
 81
9. Structuring through Non-compete Fees 81
  • How tax avoidance happens by use of non-compete agreements?
 83
  • When Macmillan Group exited from its Indian business
 86
10. Bonus Stripping 89
  • Tax planning or tax evasion?
 91
  • Validity of the scheme
 91

Part III: Profit Shifting

11. Intra-Group Services 97
  • ActionAid’s Investigations into Sweet Nothings
 98
  • Cases from Panama Papers and Paradise Papers
 102
  • Validity of the strategy
 103
  • Beerfest at AAR
 105
12. Thin Capitalisation 108
  • Modus operandi
 108
    • Incentive for thin capitalisation
 109
    • Approaches to discourage thin capitalisation
 110
    • Thin capitalisation rules in various countries
 110
    • Tax avoidance after thin capitalisation rules
 113
13. IP Migration Strategies 115
  • Royalty model
 115
    • Validity of the method
 117
  • Back-to-back licensing model
 118
  • Software IP migration model
 119
  • Political response to IP migration
 120
    • History of IP migration
 120
    • The 2017 tax reforms
 122
    • India’s response to IP migration
 123
  • Tally Solutions case
 125
  • Issue of Jungle Book’s copyright
 126
14. Cost Sharing Arrangements Used for Tax Avoidance 127
  • Validity of the modus
 129
  • Apple’s structuring arrangements
 129
  • Cases of Amazon and Microsoft
 130
15. Restructuring into a Contract Manufacturer 133
  • Validity of the strategy
 136
    • Taxing the transfer of business at the time of restructuring
 137
    • Testing PE exposure of offshore principal
 139
    • Testing POEM of offshore principals
 140
  • “Brutal tax evasion� charge on Sun Pharmaceuticals
 140
16. Structuring of Sourcing and Procurement Activities 145
  • Corporate structures for sourcing
 146
  • ActionAid’s Allegations against H&M
 150
  • Case of Li & Fung
 152
17. The Dummy’s Guide to Structuring 153
  • HQ and its Contractors
 153
  • Sourcing companies and intermediate trading companies
 155
  • Marketing and selling activities
 157
  • Haven shopping
 157
  • Treaty shopping
 159
  • Flipside of BEPS-style structuring
 161

Part IV: Base Erosion

18. Permanent Establishment Manipulations 167
  • Splitting up contracts
 169
  • Commissionaire arrangements
 171
  • Limited attribution of profits to PEs
 173
  • Employer of record intermediary to avoid service PE
 174
  • Spanish Armada versus Artificial Avoidance of PE
 175
19. Taxing the Cloud 179
  • Nexus issues of e-ticketing businesses
 180
  • Nexus in case of e-tailing and marketplace models
 183
  • Characterisation issues
 184
  • New concept of Digital PE
 185
20. Structuring of OTT Business 188
  • Validity of the model
 190
  • Efforts to establish PE
 191
21. Circumventing the Equalisation Levy 194
  • Old business model
 195
  • Introduction of equalisation levy
 197
  • New business model
 199
    • Validity of the model
 201
  • Google India’s AdWords program
 202
  • Equalisation levy on e-commerce operators
 204
  • Conclusion
 205
22. Migrating HNWIs and Professionals 206
  • Tax advantage for HNWIs
 206
  • Whether harmful tax practices?
 210
  • Base erosion of professionals
 213

Part V: Sham Transactions

23. Use of Third Party Intermediaries 217
  • Other reasons for using the modus operandi 221
    • Validity of the scheme
 221
  • Orphan Trusts 221
24. Colouring Loans as Finance Lease 224
  • Loan simplicitor versus finance lease
 224
    • Validity of the scheme
 226
  • Case of Hathway Investments
 227
  • Case of IndusInd Bank
 229
  • Case of Avasarala Technologies
 232
  • Structuring aircraft leases through Ireland
 233
25. Employer-Employee Collusion 235
  • Abetment of employees’ tax fraud by employer
 235
    • Validity of the schemes
 236
    • Interest-free loans
 237
  • Employee Stock Options
 237
    • ESOP taxability for employees
 238
    • ESOP taxability for employer
 239
    • ESOP as a tool for artificially avoiding taxes
 242
26. Tax Avoidance through Merger & Acquisition 243
  • Treatment of mergers under Indian Tax Laws
 243
  • Merger between related parties
 246
    • Validity of the modus
 247
  • When NCLT smells something fishy in a merger proposal
 248
  • Acquisition of loss-making company
 251
    • Unintended consequences of Section 79
 253
27. Saving on Dividend Tax 256
  • Treaty Shopping
 258
  • The case of Molinos Argentina
 259
  • Lack of beneficial ownership transparency
 261
  • Intra-group services
 261
  • Buy-back of shares
 263
  • Merger and acquisition to escape DDT
 265
  • Conversion of company into LLP
 266
  • Payment of dividend as business expense
 267
  • Equity recast as debt
 269
28. More sham characterisations 269
  • The Cullen strategy
 271
  • Use of a conduit
 272
  • Accounting tricks
 273

Part VI: Trends in Blatant Evasion

29. Shell Companies 279
  • A forensic auditor’s guide to shell companies
 280
  • (a) Phony directors and phony addresses
 280
  • (b) Incorporation in a bunch
 282
  • (c) Unclear beneficial ownership or benami ownership
 282
  • (d) Curious back-to-back entries in bank account
 283
  • An evolutionary history of shell companies
 283
  • Shell companies after 2015
 289
  • Shell companies post 2020
 292
30. Tax Evasion through Stock Exchanges 294
  • Bogus long-term capital gains
 295
  • Bogus capital loss
 298
  • Validity of the modus
 299
  • Mixing bogus LTCG with IPO scam
 300
  • Tax evasion through F&O Trades
 301
  • Case of Rakhi Trading
 304
31. Under-Invoicing and Over-Invoicing 308
  • Trade mispricing
 311
  • Vicious cycle of Africa’s poverty
 314
  • Butterfly effects of trade mispricing
 316
32. Hawala 318
  • Defining Hawala
 320
  • Hundi under the British India
 329
  • Migration and rise of modern Hawala systems
 333
  • Global Hawala Networks
 337
  • Modus operandi of settlement of accounts in Global Hawala Networks
 340
  • Trade
 341
    • Physical movement
 343
    • Formal channels
 344
    • Miscellaneous methods
 345
  • Investigating Hawala
 346
33. Tax Havens 349
  • Top tax havens
 349
    • The American way 351
    • Dubai: The Den of Smugglers 353
    • British spiderweb 355
    • Swiss Banks: Helping innocent evaders since 1815 356
    • Sandwich with Single Malt 358
  • Offshore advantage
 359
  • Effects of Tax Havens
 363
34. Exchange of tax information 366
  • Evading the glare of EOI
 368
  • Challenge to India’s EOIR on bank accounts in Switzerland
 369
  • Challenge to India’s EOIR on bank accounts in the US
 370

About the Author

Smarak Swain

Smarak Swain

View other books from Advanced Tax Laws and Practice
Loophole Games
Publisher: Commercial Law Publishers
Pages: 392
Language: English
ISBN: 9789356037519
₹ 1145 Price : ₹ 1495
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