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Disallowance for Failure to Withhold on Outbound Payment Violates India-U.S. Non-Discrimination Clause

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Disallowance for Failure to Withhold on Outbound Payment Violates India-U.S. Non-Discrimination Clause

To withhold, or not to withhold: that is the question.  Neha Rastogi and Nina Krauthamer review the Herbalife case in India that allowed an Indian subsidiary to deduct an administration fee paid to a related parent company for services performed in the U.S. without imposing an obligation on the company to withhold Indian tax.  The case, which relates to the tax year 2000 to 2001, has dragged on for many years.  In 2004, the law was changed, but the litigation continued.

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Draft Valuation Rules for Indirect Transfers in India

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In May, draft rules were issued in India that implement legislation designed to reverse the holding in the Vodafone case. There, a taxpayer sold shares of an offshore company having as its principal asset shares of a large Indian telecommunication company. When Indian tax authorities attempted to tax the gain of the sale of foreign shares, the Indian Supreme Court held in the taxpayer’s favor and observed that the transaction was beyond India’s territorial tax jurisdiction. The law was changed in 2012, and in 2015, certain valuation benchmarks were set that established when tax would be imposed. Neha Rastogi, Kenneth Lobo, and Nina Krauthamer explain how the value of Indian and global assets will be determined. They also address associated reporting requirements.

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Income Tax Treaties v. Domestic Law: An International Look at the Current Score

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Ask most tax advisers outside the U.S. about the way to resolve a conflict between the provisions of an income tax treaty and domestic law, and the almost universal view is to look to the treaty for resolution.  However, in some countries, an income tax treaty is not the last word in resolving conflicts.  In the U.S., the saving clause of a treaty preserves the supremacy of U.S. domestic tax rules as they affect U.S. citizens and residents, as defined in the treaty.  In Brazil, a presidential decree may govern the outcome.  And in India, a domestic tax provision may be crafted in such a way as to circumvent a treaty by altering the identity of the technical taxpayer.  Elizabeth V. Zanet, Galia Antebi, and Neha Rastogi examine ways in which those three countries directly or indirectly override treaty provisions that are deemed domestically undesirable.

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The End of the Negotiation: Protocol to India-Mauritius Tax Treaty Finally Released

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After several years of negotiations, a new protocol to the Mauritius-India Income Tax Treaty has been agreed between the parties.  In a nutshell, India benefits from amended provisions that are in line with other bilateral treaties, while Mauritius benefits from the adoption of grandfathering provisions regarding capital gains from the disposition of certain shares.  Investors in both countries will benefit from greater certainty in taxing outcomes.  Anurag Jain and Parul Jain of Attorneys BMR & Associates L.L.P., Gurgaon, address the highlights of the new provisions.

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Insights Vol. 3 No. 4: Updates & Other Tidbits

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In this month’s update, Sheryl Shah and Stanley C. Ruchelman look at the following recent developments: (i) one-time payments for off-the-shelf software are not considered to be royalties in India, (ii) offshore voluntary disclosure in Greece, (iii) the movement of Slovak companies to other jurisdictions, and (iv) the effect of the Panama Papers on CbC reporting in Europe.

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India Budget 2016-17

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On February 29, 2016, the Indian Finance Minister presented Budget 2016-17 and Finance Bill, 2016 to the Indian Parliament. Significant amendments to the tax law reflecting several B.E.P.S. recommendations and key economic policy proposals were announced. Jairaj Purandare, the Founder and Chairman of JPM Advisors Pvt. Ltd. explains the winners and losers.

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B.E.P.S. Initiative Spawns Unfavorable Permanent Establishment Court Decisions

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Two court cases in different parts of the world attack tax plans premised on the absence of a permanent establishment. Pertinent U.S. income tax treaties, with Japan and India respectively, were effectively ignored in each case. Taketsugu Osada, Christine Long, and Stanley C. Ruchelman explain.

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Notes from Abroad: Global Village on the Move – India 2015

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In October, Sheryl Shah had the privilege of representing GGi North America at Global Village on the Move, an annual leadership development program organized by the Iacocca Institute at Lehigh University. This year’s program took place in Mumbai and Virar, India and was hosted by VIVA College. The experience was unique for a lawyer just beginning a career.

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Indian MAT Exemption

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Following months of debate, the Indian Finance Ministry recently clarified that the Minimum Alternate Tax (M.A.T.) will not apply to foreign companies that do not have a permanent establishment and/or place of business in India.  Shibani Bakshi and Sheryl Shah discuss why the announcement is an affirmation of India’s positive attitude towards foreign investment.  The next move is up to the Indian Revenue.

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Indian Investors Purchasing U.S. Real Estate – From a U.S. Point of View→

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Published in International Taxation, Volume 13, Issue 3: September 2015.

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Tax Planning for Indian Businesses Investing in the US – Part II→

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Published in Taxsutra: September 2015.

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Indian Businesses Investing in the US – Tax Challenges – Part I→

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Published in Taxsustra: September 2015.

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India’s $6.4 Billion Tax on Foreign Investment

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Foreign institutional investors in India have been troubled by the demands from Indian tax officials to pay liabilities owed under the newly enforced minimum alternate tax (“M.A.T.”). India’s Finance Minister, Arun Jaitley, announced that beginning April 1, portfolio investors residing in countries that have tax treaties with India are fully exempt from the tax and will not have to pay the accompanying 20% levy on past capital gains.

The M.A.T. is essentially a minimum corporate tax that creates an overall tax of 20% on capital gains. Previously, foreign investors paid 15% on short term listed equity gains, 5% on bond gains, and nothing on long term gains.

In 2014, India’s Finance Ministry began issuing notices to foreign companies for the payment of the M.A.T. on past capital gains amounting to $6.4 billion, collectively. The Finance Ministry has not enforced the M.A.T. on foreign institutional investors for over 20 years, according to the international fund organization, Investment Company Institute Global. Foreign institutional investors have been contending that the M.A.T. should only apply to Indian companies, not foreign entities.

India Announces Ambitious Budget for 2015-16

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The Indian Finance Minister presented the Budget for 2015-16 and the Finance Bill, 2015 in Parliament on February 28, 2015. The budget statement is indicative that the Indian Government is making a sincere attempt to establish a non-adversarial, stable, certain, and simplified tax regime, conducive to encouraging investment, including foreign investment. Guest contributor Jairaj Purandare of JPM Avisors Pvt Ltd, in Mumbai, India, provides a comprehensive assessment of the provisions, including policy announcements and proposed amendments to the tax law.

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