International taxation

Tax planning 626 views 2 replies

Dilip Darji

Auditor

61 Points Joined July 2009

“A” Co – US Based Co.
“B” Co – India Based Co
“A” holds 54% Eq. Sh. in “B”
The Employee of the “A” in US is also a non-executive director of “B”.
The Said Employee now Shifted to “B” Office – India, for 3 Years to grow the “A” Business, on the Payroll of the “A”
The Expenses such as house rent, Electricity Exp., Motor car exp, mobile exp., etc are paying by “B”, and “B” reimbursed all such exp. By “A”.

Question

What are the Tax Implication in hands of Employee and Co “B” ?
Is there we can make any Tax Planning ?

Replies (2)

PRITAM JAIN, CA , CS

Practising CA CS

398 Points Joined September 2007

Hi Mr. Dilip,

Income of the employee is Income deemed to be received in India therefore all income received from co. A is chargeable to tax in India as this is Income deemed to be received in India but accrues or arise outside India.

All the facilities provided by Co. B will form part of perquisites and will form part of Income from Salary.

Co. B is required to deduct TDS on the above income (i.e. Salary + Perquisites)

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Regards

Sagar Tilak

PROPRIETOR

396 Points Joined April 2011

In my opinion, B is just paying for expenses of an employee which are regularly reimbursed by company A. Hence it is an expenditure in the books of A in US and not in the books of B in India and hence I believe that company B need not deduct tax of an employee out of payments made. However as employee is in India working for company A, it may constitute PE of company A in India. Tax is to be deducted by company A and shall be deposited in India. Company A shall obtain PAN and TAN in India and comply with TDS provisions.

Further I suggest that as the said employee is director in company B as well, proper documentation shall be maintained through out the year to prove that the said employee is working for company A and not rendering any service to company B in India as it will be quite important for Transfer Pricing in India as authorities may ask Company B to charge its parent company A for services rendered by an employee for company B.

I have gone much beyond your query. Sorry about that but such issues are interconnected and to be treated very carefully throughout the year with robust supporting documentation.