Preface to Fourth Edition
Industry and businesses regularly import and export both goods and services. Such cross-border transactions often attract the scrutiny of the tax department. The Income Tax Department raises questions on arm’s length price as per transfer pricing provisions under Income Tax Act when the transactions are between associated enterprises. Creation of Permanent Establishment (PE) when personnel from one company come to work in India for providing services or when an entity operates as an agency for a foreign company poses formidable challenges for both the companies and the tax department. Achieving tax efficiency and being fully compliant without losing the benefit under the relevant Double Taxation Avoidance Agreements (DTAAs) is one of the major concerns of industry.
The Income Tax Department is focussed on avoiding shifting of profits and therefore, seeks to effectively lower the price adopted for payment to overseas parties. On the other hand, the Customs department is concerned over undervaluation of imports and seeks to load the declared value of imported goods with various costs and expenses besides the ground of value being influenced by relationship wherever the importer and exporter are related persons as per Customs Valuation Rules.
GST law through IGST Act plays crucial role on crossborder services. Place of supply, export of service, services provided between establishments of same entity in different
jurisdictions, intermediary service and special dispensation for online service providers require rigorous examination for both availing export benefits as well as ensuring optimal compliance. Companies with trans-border operations also need to comply with withholding obligations under Income Tax Act which again is dependent on DTAA provisions and passing the stringent test of taxability in case of certain incomes like royalty and FTS.
Applicability of international taxation, adoption of appropriate transfer pricing, valuation of both imported and exported goods under Customs law and treatment of import and export of services under IGST Act are major areas requiring clarity.
Exemptions from customs duties for imported goods either through customs notifications generally or in particular, under export promotion schemes provided in Foreign Trade Policy are often availed by companies. This book through a dedicated chapter focusses on such exemptions and export incentives.
As payment and receipt of consideration is one of the key elements in both direct and indirect tax laws, Foreign Exchange Management Act (FEMA) along with rules, regulations and RBI’s master directions and master circulars provide the regulatory framework. It further intersects with IT Act by regulating establishment of branch office or liaison office of foreign companies in India and this inter-section assumes great significance from the point of view of companies undertaking business involving India through their establishments or using them only as communication channel. The interplay is more pronounced when export of service is examined under IGST Act between establishments of the same legal entity in different jurisdictions and when services like intermediary is considered. Therefore, this book includes not only a separate chapter on FEMA but also references to it in other chapters wherever necessary.
We find that a comprehensive work covering at one place cross-border transactions of goods and services from the perspective
or applicability of Income Tax Act, Customs Act, IGST Act and FEMA is not available to stakeholders. This books endeavours to fill this void.
We have tried to provide practical guidance based on judicial interpretation of the law and rules along with easyto-understand commentary on the provisions along with departmental clarifications. We hope this book is useful to the industry in comprehending cross-border tax implications and in providing technical inputs to practitioners, judges and assessing officers by highlighting finer nuances of both the statutory provisions as well as interpretation of the same by the department and the judiciary and tribunals. This fourth edition is updated with developments as on date – statutory changes and orders/judgments.
We are indebted to our parents for sacrificing whatever they had to ensure we have access to the best education without which this book could not have been a reality. We are grateful to Mr. V. Lakshmikumaran, Advocate for the learnings and Taxmann – the tax publishing industry leader for encouraging us by providing continued support to this book. We thank members of our families, professional colleagues and friends for their constant support.
September, 2024
Email: advgokulsubha@gmail.com
G. Gokul Kishore
Chennai R. Subhashree
IMPORT & EXPORT UNDER IGST ACT
CUSTOMS EXEMPTIONS AND EXPORT PROMOTION SCHEMES UNDER FTP
EXPORT AND IMPORT UNDER FOREIGN EXCHANGE MANAGEMENT ACT & REGULATIONS
PERMANENT ESTABLISHMENT & DTAAs
CHAPTER
3.1 TAXING POWERS AND SOURCE OF INCOME
Barendra Prosad Ray ITO
CIT Quantas Airways Ltd.
Clifford Chance PTE Ltd. ACIT] 4
Source of income
Source means not a legal concept but something which a practical man would regard as a real source of income; the ascertaining of the actual source is a practical hard matter of fact.”
Rhodesia
Metals Ltd. Liquidator Commissioner of Taxes .
Anglo-French Textile Co. Ltd CIT
French Textiles Ltd.
Income accruing or arising in India and deeming fiction in Section 9 of Income Tax Act
CIT Havells India Ltd. , -
CIT Anglo
CIT Ahmedbhai Umarbhai & Co.
Sassoon
Specific exclusions in Section 9
Explanation
2 Explanation 2A
Explanation 3A
Explanation 1
3.2 CONCEPT OF PERMANENT ESTABLISHMENT
Charge of tax
Ishikawajma-Harima Heavy Industries Ltd
Kennard Davis Commissioner of Inland Revenue
Eisner Macombar
Taxes on income other than agricultural income
Illustration
Legislation with extra-territorial effect
the categories of business connection are incapable of exhaustive enumeration”
Business connection and permanent establishment
Place where business is carried out and source of payer establishes business connection GVK Industries ITO -
Sea Bird Exploration FZ LLC, In re
Birla Corporation Ltd Asstt. CIT
Asstt. CIT EPCOS AG -
Motorola Inc. Dy. CIT
Cross-Border Transactions under Tax Laws & FEMA
AUTHOR : G. GOKUL KISHORE, R. SUBHASHREE
PUBLISHER : TAXMANN
DATE OF PUBLICATION : SEPTEMBER 2024
EDITION : 4TH EDITION
ISBN NO : 9789364553308
NO. OF PAGES : 872
BINDING TYPE : HARDBOUND
Rs. 2,395
DESCRIPTION
This book provides a comprehensive guide to managing tax and compliance issues in cross-border business transactions, focusing on key laws like the Income Tax Act, Customs Act, IGST Act, and FEMA. It provides practical insights into international taxation, transfer pricing, customs valuation, withholding tax obligations, and the application of Double Taxation Avoidance Agreements (DTAAs). With a focus on real-world challenges, the book goes beyond basic concepts, addressing practical issues businesses face. It includes case laws, judicial interpretations, and departmental clarifications, offering a deep understanding of statutory provisions and their applications. Cross-references across chapters provide a holistic view, making it a reliable technical analysis and decision-making tool. This guide benefits exporters, importers, judicial members, legal practitioners, tax professionals, and government authorities.
The Present Publication is the 4th Edition, amended by the Finance (No. 2) Act, 2024. This book is authored by Dr G. Gokul Kishore & R. Subhashree, with the following key highlights:
• [Multiple Laws] The book uniquely covers the Income Tax Act, Customs Act, IGST Act, and FEMA, addressing key areas like arm’s length pricing, Permanent Establishment (PE), and customs valuation
• [International Taxation & Transfer Pricing] Detailed analysis of international taxation, including transfer pricing, ALP, and DTAAs, with specific focus on royalty, Fees for Technical Services (FTS), and tax residency
• [Profit Shifting] Insights into the Income Tax Department’s efforts to prevent profit shifting and strategies for compliance
• [Customs Valuation] Guidance on customs valuation under the Customs Valuation Rules and addressing challenges in defending declared transaction values
• [GST & Cross-border Services] Examination of cross-border services under the IGST Act, with a focus on the place of supply, export benefits, and intermediary services
• [FEMA Compliance] Detailed discussion on FEMA’s role in regulating payments and receipts in cross-border transactions, especially for branch/liaison offices
• [Withholding Obligations] Practical guidance on withholding tax obligations, especially under DTAAs for royalty and FTS
• [Export Promotion & Incentives] Explanation of customs duty exemptions and export incentives under the Foreign Trade Policy 2023
• [Case Laws & Judicial Interpretations] Comprehensive analysis of relevant case laws and judicial interpretations for better understanding of cross-border tax disputes