We are happy to present you the latest edition of Tax Trends, SKP's Direct Tax Newsletter. This edition covers the period from April to June 2017.
The dynamism in the tax policy and administration under the current government was sustained in this quarter. In a remarkable achievement, the government was successful in launching the Goods and Services Tax (GST) with effect from 1 July 2017.
India signed the Multi-Lateral Instrument (MLI) under the Base Erosion and Profit Shifting (BEPS) Action Plans, along with 67 other jurisdictions, in a signing ceremony in Paris on 7 June 2017. The MLI, which was considered to be a 'pipe dream' by the critics, saw the light of day in record time. India has sought to apply the MLI to all of its 93 comprehensive tax treaties.
Signing of the MLI is a radical change in the international tax landscape and would have far-reaching implications. Tax structures such as setting up of holding companies, marketing/agency entities, splitting of contracts, etc. will require a re-examination in light of the MLI, and certain structures may have to be undone. We discuss certain aspects of the MLI under Spotlight.
The General Anti-Avoidance Rules (GAAR) have come into operation from 1 April 2017 after being in the pipeline for over seven years. GAAR promises to significantly alter the thin line between tax planning and tax avoidance and would be a potent tool in the hands of the tax authorities to deny aggressive tax planning arrangements.
Continuing with its determined efforts to move towards a transparent and non-adversarial tax regime, the government launched a new initiative of conducting Revenue Audits (scrutiny assessments) mandatorily through electronic means. This initiative covers almost all categories of taxpayers. Under this initiative, the entire audit process in terms of calling for information, submission of data, raising of queries by the tax authorities, etc., will be carried out through electronic means. The tax authorities cannot compel physical attendance of the taxpayer to discuss his case. The taxpayer has the option of asking for a personal appearance only if the tax authorities contemplate an adverse view in its case – such adverse view is also required to be officially communicated to the taxpayer. This step is a bold move and is definitely a positive step inimproving the tax climate in India.
This quarter also saw significant judicial rulings. In the context of Permanent Establishments (PEs), the Supreme Court of India pronounced a ground-breaking ruling in the case of Formula One Championship where it held the matter in favour of the tax authorities. This ruling of the Supreme Court, where the Court looked at the contractual arrangements between different group entities involved in economic activity in India, may imply application of Group PE rule and may also been seen as a reading down of the 'look-at' and not 'look-through' test pronounced in the famous Vodafone ruling.
Similarly, there have been significant rulings on the issue of taxability of payments under secondment agreements. A ruling by the Bangalore Tribunal regarding service PE, with all due respect, does not seem to take note of established the principles for constitution of a service PE.
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