India Tax Weekly Budget Edition 2012

Profession:JSA Advocates & Solicitors

1. TAX PROPOSALS 1.1 Non-resident / International taxation Retrospective amendment in source rule regime under section 9 to neutralize the impact of Vodafone decision of Supreme Court in case of indirect transfer of controlling interest in an Indian company. All notice for show cause/tax assessments already issued in respect of similar transactions have been sought to be validated Definition of 'property' and 'transfer' to be amended to cover direct or indirect transfer of management or controlling rights in an Indian company for levy of capital gains tax Non-resident purchaser to withhold tax in case of non-resident to non-resident transactions whether or not there is a residence or place of business or business connection or any other presence in India Comprehensive amendment in scope of 'royalties' on a retrospective basis to: deal with controversies in relation to package software/off-the-shelf software and sale of a 'copyrighted software' versus 'right to use copyright' in the software include payment for any property whether or not there is any possession or control over such property include payment for transmission, up-linking, amplification services by satellite whether or not such process is secret Specific provision for making tax residency certificate a necessary condition for seeking tax treaty benefits Time period for obtaining information for completion of assessment or reassessment from other country under the provisions of DTAA extended to 1 year instead of 6 months Income arising in India to a non-citizen, non-resident entertainer, non-resident sportsmen and non-resident sports association will be taxed at 20% of gross receipts instead of 10% Any meaning assigned to a term used in DTAA but not defined in domestic laws by way of a notification will be effective from the date of coming into force of the DTAA itself 1.2 General anti-avoidance rule ("GAAR") GAAR was originally conceived for introduction under proposed Direct Tax Code is proposed to be inserted in the extant tax laws to deal with aggressive tax planning An arrangement main purpose of which is to obtain a tax benefit and satisfies at least one of the four prescribed tests can be declared as an "impermissible avoidance arrangement" GAAR can be invoked to re-christen a transaction according to its commercial substance as perceived by the tax department by collapsing any fancy structure or nodes/steps in a financial /strategic investment structure Tax...

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