10-Aug-2022
Presented
Guide to Learning and Practice – International Tax Prepared by -
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CA Naman Maloo by CA Naman Shrimal
Ground Rules 2 ▰ Why : Belief that international tax practice has immense potential ▰ What : 1 hr session- awareness- before in-depth sessions ▰ How : No Case Laws - Just Principles and concepts - and some examples ▰ Advice : Don’t write, PPT available - Focus on understanding the concept ▰ End Result : Kindle thought of entering into Cross Border Transaction Field. ▰ Caution: All views are personal… ▰ Interactive : Lets have Fun !!!
Agenda Basics Of International TaxationBasic Section 5, 6, 9, 90 of The Income Tax ActIT Provision Principles for interpretation of DTAA & important conceptsDTAA Section 195 and Form 15CBDeductionGuidance to setup International Taxation practicePractical A B C D E 3
What is International Taxation ?? 4 SHYAM RAM COR COS
India
Taxability of Income in
Section 5 Scope of Total Income 6 ▰ Deals with scope and which income of a resident or non resident person shall be included in total income for Income tax purpose. The summary of which is as under:
Residential Status
8 Clause Individual Condition Resident- No. of Days ConditionStatusR-NOR 1) PersonAny - - 182 Days or more OR - 60 days + 365 days in 4 PY - NR in 9/10 PY or - 729 days or less in 7PY Clause (a) of Ex 1 COI (leavesIndia) -India Ship Crew Member or -For the purpose of Employment outside India 60 days 182 +365 days in 4 PY Clause (b) of Ex 1 COI/POI -Visits India from outside India 60 days 182 +365 days in 4 PY The Period of 120 days to 181 days + Total Income of Rs 15 Lakh or more 60 days 120 +365 days in 4 PY (1A) COI Total Income of Rs 15 Lakh or more and not liable to tax in any other country - Always R-NOR Residential status- Individual
As per section 6(3) of Income tax Act, a company is said to be a resident in India in any previous year, if— (i) it is an Indian company; or (ii) its place of effective management, in that year, is in India. Explanation. - For the purposes of this clause "place of effective management" means a place where key management and commercial decisions that are necessary for the conduct of business of an entity as a whole are, in substance made. 9 Residential Status of Company
Residential Status - To summarize Determining Factors 10 ▰ Individual Stay in India, Physical Presence ,Citizenship, Liable to tax, etc. ▰ HUF, Firm, AOP Control & Management- Non-Resident where control and management of its affairs is wholly situated outside India ▰ Company Incorporation, Place of effective management, in that year, in India ▰ Others Control & Management- Non resident if control and management of its affairs is wholly situated outside India
11 Global Income is taxable Only income received/deemed to received, accrue or deemed to accrue or arise in India is taxable Resident NonResident Therefore for NR, we need to check which incomes are Accrue or arise in India & deemed to accrue or arise in India? Sec 5 & 6
Income accrue or arise in India
Explanation 1.—Income accruing or arising outside India shall not be deemed to be received in India within the meaning of this section by reason only of the fact that it is taken into account in a balance sheet prepared in India.
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Explanation 2.—For the removal of doubts, it is hereby declared that income which has been included in the total income of a person on the basis that it has accrued or arisen or is deemed to have accrued or arisen to him shall not again be so included on the basis that it is received or deemed to be received by him in India.
Income Accrue or Arise in India
▰ Income Accrue or Arise in India In common parlance income would be said to accrue or arise when a person gets a right on that income.
Income deemed to accrue or arise in India (Section 9)
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▻ A dividend paid by an Indian company outside India Income by way of interest. Income by way of royalty. Income by way of fees for technical services
▻ Income chargeable under the head "Salaries" payable by the Government to a citizen of India for service outside India.
15 Section 9: Income deemed to accrue or arise in India – Scope ▰ The following income shall be deemed to accrue or arise in India: In With ▻ All income accruing or arising, whether directly or indirectly, through or from ▻ any business connection in India, or ▻ any property in India, or ▻ any asset or source of income in India, or ▻ through the transfer of a capital asset situate in India. ▻ "Salaries", if earned in India.
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▻ Income arising outside India, being any sum of money referred to in sub-clause (xviia) of clause (24) of section 2 (gift income relating to immovable property), paid on or after the 5th day of July, 2019 by a person resident in India to a non-resident, not being a company, or to a foreign company.
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Rate – Illustrative List 16 SECTION DEDUCTEE NATURE TRANSACTIONOF TDS RATE 115A(1)(a) r.w.s. 194LBA(2) NR, FC Dividend 10%,20% 115A(1)(a) r.w.s. 194C,194LD,194LBA(2) NR, FC Interest 5%,20% 115A(2) NR, FC Royalty Or Fees for Technical Services 10% 195 NR Any Other Income 30% 195 FC Any Other Income 40% Tax as per Act = Scope * Rate
Introduction of DTAA
Beneficial Provision ▰ Sec- 90(2) - Where the Central Government has entered into an agreement with the Government of any country outside India or specified territory outside India, as the case may be, under sub-section (1) for granting relief of tax, or as the case may be, avoidance of double taxation, then, in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to that assessee.▰ Both for Scope and Rate 18 18 IT ACT DTAA SecRoyalty115A@10% As per RoyaltyDTAA-@15% IT Act Sec - 115A(1)(b) FTS @10.4% plus surcharge DTAA As per DTAA FTS @10%
1. Check Income Tax Act 2. Refer respective DTAA 3. Sec 90(2)- ITA or DTAA whichever is beneficial Check Scope & Tax rates
DTAA - Double tax avoidance agreement ▰ Double Tax Avoidance Agreement (DTAA)/ Tax Treaty- As the name suggests, it is an agreement between two countries to regulate the matters concerning direct taxes. ▰ DTAAs can be either ▻ Comprehensive, i.e. cover almost all types of incomes covered by any model convention. Eg. sometime, a treaty covers wealth tax, gift tax etc. ▻ Limited, i.e. Limited to certain types of Income only. Eg. DTAA between India & Pakistan is limited to aircraft profits only. 20
Significant Model Conventions on which DTAA are based Model betweenConvention countriesdeveloped –Advocates Residence based taxation Model Convention between developed and countrydeveloping – More emphasis on Source based taxation Applied by the United States OECD Model UN Model US Model 21
DTAA - Double tax avoidance agreement 22 Articles in the Model Conventions keeping in view the UN convention: ➢ Article 1 - Persons Covered ➢ Article 2 - Taxes Covered ➢ Article 3 - General Definition ➢ Article 4 - Resident ➢ Article 5 - Permanent Establishment ➢ Article 6 - Income from Immovable Property ➢ Article 7 - Business Profits ➢ Article 8 - Shipping, inland waterways transport and air transport ➢ Article 9 - Associated Enterprises ➢ Article 10 - Dividend ➢ Article 11 - Interest ➢ Article 12 - Royalties and Fees for Technical Services ➢ Article 13 - Capital Gains ➢ Article 14 - Independent Personal Services ➢ Article 15 - Dependent Personal Services ➢ Article 16 - Director’s Fees
DTAA - Double tax avoidance agreement 23 Articles in the Model Conventions keeping in view the UN convention: ➢ Article 17 - Artistes and Sportsmen ➢ Article 18 - Pensions ➢ Article 19 - Government service ➢ Article 20 - Students ➢ Article 21 - Other Income ➢ Article 22 - Capital ➢ Article 23 - Methods of Elimination of Double Taxation: A - Exemption Method B - Credit Method ➢ Article 24 - Non – Discrimination ➢ Article 25 - Mutual Agreement Procedure ➢ Article 26 - Exchange of Information ➢ Article 27 - Assistance in the collection of Taxes ➢ Article 28 - Members of Diplomatic missions and consular posts ➢ Article 29 - Entitlement to benefits ➢ Article 30 - Entry into force ➢ Article 31 – Termination
How to read DTAA Let’s read an actual treaty…..
DTAA - General Distribution Pattern 25 Type of Income (Most Used Clauses) General Taxability (Please check treaty) Immovable Property COS Business Profits and Independent Personal Services When PE/FB/Number of Days crossed in COS Dividend, Interest,Royalty, Fees for Technical Services COS share restricted to % Capital gains Immovable Property/Shares/Movable business Property - COS, Others COR Dependent Personal Services If employment exercised in source country, then COS, otherwise COR
Interpretation of DTAA – Pointer to Ponder
▰ Retrospective amendment in the Act cannot be read into DTAA
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▰ If two views possible, view which is favourable to Taxpayer should be adopted ▰ For each stream of income, Taxpayer can adopt taxability either under Act or under DTAA, whichever is beneficial to the Taxpayer ▰ Treaty to be read in whole and not in isolation If any term not defined in treaty than the meaning of such words can be taken from local law ▰ Reliance can be placed on Report of Technical Advisory Committee of OECD ▰ If any income is not taxable in any particular article of Tax Treaty, whether the same would be taxable in residuary article (i.e. article on other income)
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To sum up 27 Income Tax of a Non Resident Scope as per Income Tax ∕ Scope as per DTAA Rate as per Income Tax Rate as per DTAA ∕
Collection - Section 195, 15CA/CB 28
Section 195: TDS on payment to Non resident ▰ “Any person responsible for paying to a non-resident, not being a company, or to a foreign company, ▰ any interest (not being interest referred to in section 194LB or section 194LC) or section 194LD or any other sum chargeable under the provisions of this Act (not being income chargeable under the head "Salaries") shall, ▰ at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, ▰ deduct income-tax thereon at the rates in force. ” 29
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▰ 15CB is the Tax Determination Certificate where the CA examines the remittance with regard to chargeability provisions under Section 5 and 9 of the Income Tax Act along with the provisions of Double Tax Avoidance Agreements. In form 15CB, a CA certifies details of the payment, TDS rate and TDS deduction as per Section 195 of the Income Tax Act, if any DTAA is applicable, and other details of nature and purpose of the remittance. Upload of Form 15CB is mandatory prior to filling Part C of Form 15CA. To prefill the details in Part C of form 15CA, the Acknowledgement Number of e- verified form 15CB should be verified.
What is Form 15CB?
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31 Section 195(6) r.w. Rule 37BB We have a duty to protect country’s tax base
▰ Section 206AA states that a person who is receiving any income which is liable for TDS shall furnish his Permanent Account Number to the person responsible for deducting such tax, if not provided tax shall be deducted at higher of the following: ▰ at the rate specified in the relevant provision of this Act; or ▰ at the rate or rates in force; or ▰ at the rate of twenty per cent.
▰ TRC & Tax identification number or any other unique number identified by government. 32
▰ Rule 37BC was introduced by Finance Bill, 2016 w.e.f. 24.06.2016 which provides relief on deduction in case of certain payments i.e. payments in the nature of interest, royalty, fees for technical services and payments on transfer of any capital asset.
Section 206AA read with rule 37BC
▰ However to avail this benefit deductee needs to furnish the following details: ▰ Name, Email-id, Contact number. ▰ Address of the country where he is a resident.
Steps to keep in mind while making foreign remittance ▰ Verify the original invoice or agreement to know about the transaction. ▰ Make classification of transaction on the basis of nature of income. ▰ Check taxability as per Domestic Law. ▰ Check taxability as per DTAA along with availability of TRC/Form 10F and no PE certificate. ▰ Also check the website of the supplier to get additional details about their Indian operations if any. ▰ Check the rates of TDS applicable & Exchange rate. ▰ Form 15CA/15CB -Whatever applicable ▰ Remit the amount. 33
Tax relief u/s 90 & 91 of The IT Act and Section 206AA interplay 34
Relief from Income earned outside India by Resident 35 Income chargeable to tax in India and other state India is not having Double Tax Avoidance Agreement with that country (Unilateral Relief) India has Double Tax Avoidance Agreement with that country (Bilateral Relief) U/s 90 (Agreements exist between two government) U/s 90A (Agreement entered specifiedbetweenorganisation) U/s 91 of Income Tax Act
▰ Section 91 - Credit method - At Indian rate of tax or foreign rate of tax, whichever is lower 36
Section 90/91 of the Income Tax Act: ▰ Section 90
Sub section 4 - to claim relief from double taxation is to provide Tax Residency certificate (TRC) of the country where he/ she is a resident and if the TRC is in foreign language or is not providing all the information as required in Form 10F is assessee will also have to file Form 10F to claim relief.Thus if one wish to claim relief and take benefit of DTAA TRC is the most important thing.
Sub section 2 - The provision of DTAA or Income tax shall apply whichever is more beneficial to the assessee.
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Form No. 67 - Foreign Tax credit
▰ Form 67, which needs to filed by the assessee online when he needs to claim credit of tax whether u/s 90/ 90A/ 91. This needs to be filed by the assessee to take foreign tax credit in the year in which he offers corresponding income to tax in India. Form 67 shall be available to all the assessee’s login. The assessee is required to login into the e-filing portal. Then under E-file drop down assessee needs to select Prepare and submit online Forms (Other than ITR). Select Form 67 from the drop down and the instructions to fill the same would also be available there. In the end attach certificate or statement and proof of payment/deduction of foreign tax as referred to in clause (ii) of sub-rule (8) of rule 128.
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Form No. 67 - Foreign Tax credit
2. Certificate or statement specifying the nature of income and the amount of tax deducted therefrom or paid by the assessee,— a. from the tax authority of the country or the specified territory outside India; or b. from the person responsible for deduction of such tax; or c. signed by the assessee: Provided that the statement furnished by the assessee in clause (c) shall be valid if it is accompanied by,— (A) an acknowledgement of online payment or bank counter foil or challan for payment of tax where the payment has been made by the assessee; (B) proof of deduction where the tax has been deducted. 38
1. A statement of income from the country or specified territory outside India offered for tax for the previous year and of foreign tax deducted or paid on such income in Form No.67 and verified in the manner specified therein.
▰ The attachment you need to submit the following statement and certificate:
Guide to Develop International Tax Practice 39
Initial Resources ▰ https://www.youtube.com/watch?v=PDzDSPGY0Bo&list=PLzugOrS2Z8orHcj h8T3zvqcBX45kLnkIe-Rethinking International TaxLaw - Leiden University ▰ https://www.incometaxindia.gov.in/pages/international-taxation/dtaa.aspx ▰ ICAI – DIIT Course material on International Taxation ▰ Compendium by Chamber of Tax Consultants - Nov - 2020 ▰ UN/OECD Model Commentary ▰ Various youtube session by ICAI,BCAS , CTC, Other Forums ▰ Important Case Laws ▰ This PPT !!!! 40
Typical First Transactions & Clients 41 ▰ Transactions ▻ NRI Returns ▻ 15CA/CB Certificate ○ NRO to NRE ○ Export Commission ○ Exhibition Stalls ○ Software Purchase ▻ 27Q - TDS Return ▻ TP - Section 115BAB ▰ Clients ▻ NRI ▻ Software ▻ Jewelry ▻ Pharma ▻ Textile ▻ Services ▻ Foreign market place
Typical First Countries 42 USA China Canada Australia Thailand Malaysia Singapore South Africa ArabiaSaudi Netherlands UK GermanyMauritiusUAE
Guide to Develop International Tax Practice ▰ Referral Practice - Network Locally - Speak Regularly ▰ Regular knowledge update - Network Nationally/Internationally ▰ Location - Advantage ▰ Work Anonymously ▰ Understand world economics ▰ Read International articles ▰ Be ready for a long term haul 43
Practical Tips - International Taxation ▰ Interplay of Act(s)(Law) and Treaties(Agrement) ▰ Logic not theory ▰ Based on Socio-Economic Consideration, Understand the tax wars ▰ Rapid Changes clubbed with technological changes ▰ Read, Read and Read !!!!! ▰ At the end it's only two house owners fighting for fruits of overhanging tree 44
THANK YOU 45
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Disclaimer 46
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