Expectations from Union Budget 2016 to mollify Foreign Investors
The government has initiated movements like ‘Make in India’ , the red carpet for global investors and Prime Ministerial meetings with various Heads of States to strengthen bilateral trade relations. With expectations soaring, it would be interesting to see if the budget meets the expectations of everyone including non-residents willing to invest in India.
We have discussed five issues faced by the foreign investors and the expectations from the Union Budget 2016-17.
1. Tax Neutrality in case of overseas Reorganization
- The current law allows exemption from capital gain tax only in case a foreign company is merged into an Indian company and not vice-versa.
- In the emerging global scenario it is important that the merger of Indian companies into foreign companies should be legally recognized and made pari-passu with the merger of foreign companies into Indian companies, particularly for income tax purposes.
- Adequate provision should be made to amend the current law and exempt capital gain in case of merger of Indian companies into foreign companies also.
2. Requirement for Non-residents to comply with TDS Obligations-section 195
- The amendment made by the Finance Act, 2012, has extended the scope of TDS obligations to all persons including non-residents, irrespective of whether they have a residence/ place of business/ business connection or any other presence in India.
- This provision should be modified to restrict the applicability of TDS provisions to the residents and the non-residents having a tax presence in India only.
3. Information to be furnished for making remittance abroad
- The reporting requirement in relation to foreign remittances which are not liable to tax was relaxed with effect from October 2013.
- Once again, there was an amendment by the Finance Act 2015 which mandated the furnishing of Form 15CA and Form 15 CB for all the payments whether or not chargeable to tax.
- This has increased the compliance burden on foreign tax payers.
- Currently, there is no provision to cancel or correct the erroneous form 15CA and the taxpayer is required to fill and upload a fresh form in case of any error, which makes the task more tedious.
- Penalty clause is also introduced in case of failure to furnish information or furnishing of inaccurate information as required to be furnished under the law, to the extent of INR one lakh.
- It is recommended that the law should be amended to make the compliance mandatory only in the case where the transaction value exceed certain threshold limit or to the transactions which are subject to tax.
- Necessary clarification should also be issued to remove all the ambiguities related to the new law.
- A system should be there in place so as to enable the payers to edit/cancel the erroneous Form15CA rather than filling all the details in fresh.
- It should be clarified that penalty ought to be levied only if there is a non-disclosure or inaccurate disclosure of information wilfully leading to non-deduction of tax on remittances which are chargeable to tax under the provisions of the Act.
4. TDS from payments to Non-residents having Indian branch/fixed place PE
- The corporate tax rate for non-resident companies being 40 (plus surcharge and education cess) results in requiring a non-resident company to file return of income to claim refund of excess taxes deducted.
- This creates cash flow issues for the non-resident company having operations through an Indian branch unviable, when compared with its Indian counterparts.
- This additionally requires the non-resident company to mandatorily approach the tax office to seek a lower TDS certificate, the process being time-consuming and non-taxpayer friendly.
- It is recommended that payments which are in the nature of business income of non-residents having an India branch office or ‘a place of business within India’ should be subject to similar TDS requirements as in case of payments to domestic companies.
- It would go a long way in facilitating ease of doing business in India and the tax officer would be in a position to better monitor and regulate such non-resident companies.
5. Tax Residency Certificate
- As per the current tax law, the payer must obtain TRC from the payee in order to give the benefit under tax treaty.
- The issue with the current law is hardship being faced by the non-residents having very few/limited transactions connected to India to obtain TRC as it becomes difficult and time consuming process in some jurisdiction.
- It is recommended that the TRC should be made mandatory only for cases where the total payment to a non-resident exceeds certain threshold limit in a financial year.
- It is also recommended that the requirement to furnish TRC should be cast upon the payee at the time of the assessment of the payee and the deductor/ payer should not be made liable to collect TRC from the payee at the time of TDS.
The tax payers have lot of expectation from the forthcoming Union budget which is to be announced on February 29, 2016. It would also be interesting to see whether the government would come out with the measures to tackle the issues like growth of friendly tax policies, greater clarity in law, consistency in interpretation and implementation, overhauling the administrative and Dispute Resolution Machinery.
Authored by Kapil Nayyar, Partner & Head, Direct Tax and Neha Srivastava, Manager, International Business Advisors. Kapil can be reached at firstname.lastname@example.org and Neha can be reached at email@example.com
International Business Advisors (www.ibadvisors.co) is a boutique audit, tax and consulting firm run by ex-BIG4 professionals and working extensively with multinational companies operating in varied sectors including e-commerce, mobile, manufacturing, real-estate and hospitality. IBA operate out of its offices in Delhi, Mumbai and Bangalore.