The Finance Minister affirmed that amidst the global headwinds, the Indian economy has held its ground firmly. Without doubt,the international community, especially those looking at India as a preferred investment destination would agree that India is surely moving towards attracting foreign investments. The Government attempted to bring increased transparency into the tax system by taking various measures such as issuing draft guidelines on determining the Place of Effective Management, providing clarity on applicability of MAT to Foreign Companies, appointing committees to address tax-related issues, constitution of Income-tax Simplification Committee, etc.
The year 2015, witnessed exceptional changes to the global tax landscape: Base Erosion and Profit Shifting (BEPS) discussion drafts turned into final recommendations, changed the cross-border tax landscape so significantly. Also, the Indian government actively participated in the Organisation for Economic Co-operation and Development (‘OECD’), BEPS project. Being the first Union Budget after release of the final reports by the OECD, BEPS has been the talk of the tax town and was likely to influence tax policy changes in the Budget.
Some of the key changes introduced in the Budget, as being originating from the BEPS report are discussed below:
* Country by country reporting – Indian multinationals having a consolidated revenue exceeding 750 mn Euro, would be subjected to exhaustive documentation norms through a three tiered standardized approach on country by country reporting, master and local file, as a legislative base to BEPS recommendations.
Patent Tax – Based on the Recommendations of OECD in its Report on Action 5 – ‘Countering Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance’, India has sought to tax income by way of royalty at the rate of ten percent in respect of a patent developed and registered in India, leading to taxation in the jurisdiction where substantial R&D activities are carried out rather than the jurisdiction of legal ownership.
Equalisation Levy – BEPS concerns arising from the digital economy has been a key area of focus for India. The Government with a view to address concern on Digital Economy, has sought to introduce ‘Equalisation Levy’ of 6% of the amount of consideration received/ receivable by a non-resident from a person resident in India or from a non-resident having a PE in India, for services relating to online advertisement, including any provision for digital advertising space or any other facility or service for the purpose of online advertisement.
With a view to curb litigation on transfer pricing matters, the Government has proposed to deny the right of filing appeal by the Department against the DRP order. On the flip side, in instances where a matter has been stayed by Court or reference for exchange of information has been made by a CA, the time limit available has been extended by a minimum of sixty days.