International-Tax


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International Tax

CBCR Reporting

Country-by-country reporting requires companies/groups above a certain revenue threshold and having business in more than one country to submit three intra-company trading and accounting levels in their cross-border business activities. These are mainly master files ( having corporate guidelines for allocation of expenses and general principles to be followed for the pricing between the companies. The local file is maintained at a country-specific level indicating detailed transactions and methodology adopted for transfer pricing. It should be in line with the master file. Country by country reporting is the summary of transactions and other criteria that helps tax authorities to understand the actual place of occurrence of income.

These new and complex regulations can vary significantly from one jurisdiction to another, making it difficult for a multinational business to comply effectively and consistently.

OECD guidelines

The OECD Guidelines are recommendations addressed by governments to multinational enterprises operating in or from adhering countries. These are non-binding principles and standards for responsible business conduct in a global context consistent with applicable laws and internationally accepted standards. The Guidelines are the only multilaterally agreed and comprehensive code of responsible business conduct that governments have committed to promoting.

OECD transfer pricing guidelines issued in 2017 clarified and incorporates BEPS reports, transfer pricing documentation on a country by country reporting, and revised guidance on safe harbours to release compliance burdens.

POEM - Place of Effective management

In the Finance act 2015, the residence of foreign companies is decided based on the place of effective management in India. It means a company incorporated and having a place of business outside India will be treated as a resident in India if its effective management is in India. Various notifications have been issued to settle down effective leadership in India, and companies are broadly divided into two parts. Companies having active business outside India and companies other than having active business in India. Different guidelines are set for both of these types of entities.

We at PRANV assist you in taking preventive measures to safeguard you from litigation about the place of effective management.

Double taxation avoidance agreement (DTAA)

DTAA, as the name suggests, is an agreement between two countries to reach an agreement on the taxability of income arising through specific transactions. It also includes the concessional tax rate withheld by a government on remittance of payment to another country. The main objectives of DTAA are to avoid double taxation on the same income in different countries, ease the recovery of tax dues and prevent fiscal evasion.

Withholding Tax

Section 195 of the Income-tax act deals with the provisions of withholding Tax. Any person responsible for making certain payments to a non-resident, not being a company, or to a foreign company, shall, at the time of credit of such income to the account of the payee or at the time of payment whichever is earlier, deduct income-tax thereon at the rates in force.

A non-resident can claim the credit of Tax deducted in their home country as per applicable laws. You can get the Tax rates under DTAA through the below link: https://www.incometaxindia.gov.in/Pages/international-taxation/withholding-tax.aspx

NRI / Expat taxation

NRI income is taxed at the rates applicable to resident Indians below 60 years of age. There is no benefit available to an NRI in respect of his age.

An NRI need not file the tax return if taxable income consists of long term capital gain and Tax has already been deducted on such income.

Further, the following incomes of NRI are exempt from Tax:

interest earned on saving certificates
Interest earned on NRNR deposit
LTCG if shares are sold through the recognized stock exchange.
Profit on sale of equity unit mutual fund
Interest on notified bonds

Computation of Income of NRI
Section 115D deals with the Special provision for computation of total income of non-residents, this section states that:
(1) No deduction regarding any expenditure or allowance shall be in computing the investment income of a non-resident Indian.
(2) Where in the case of an assessee, being a non-resident Indian,
(a) the total gross income consists only of investment income or income by way of long-term capital gains or both; no deduction shall be allowed to the assessee, and nothing contained in the provisions of the second proviso to section 48 shall apply to income. Chargeable under the head "Capital gains."

Investment and LTCG income (other than on specified assets) of the NRI is charged at 20%, whereas LTCG on fixed assets is charged at 10%. Payment other than these is charged at an average rate.

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