General Updates

 
1 Cross Border Updates
a China releases the corporate income tax treatment on perpetual bonds
  China’s Ministry of Finance (MOF) and State Taxation Administration (STA) jointly released MOF/STA PN [2019] No. 64 (PN 64)1 to clarify the corporate income tax (CIT) treatment on perpetual bonds. PN 64 becomes retroactively effective on 1 January 2019



b Indonesia issues new guidance on Mutual Agreement Procedure
  Indonesia’s Ministry of Finance (MOF) has released Regulation Number 49/PMK.03/2019 (PMK-49), providing guidelines for the implementation of the Mutual Agreement Procedure (MAP). PMK-49 is to implement in Indonesia the minimum standards contained in Action 14 of the OECD’s1 BEPS2 Project. PMK-49 became effective as of 26 April 2019 and provides specific procedures and timelines for the MAP application. PMK-49 revokes the MOF Regulation Number 240/PMK.03/2014 (PMK-240). While PMK-49 is generally consistent with PMK-240, PMK-49 includes changes as discussed below. This Alert summarizes key aspects of PMK-49.
c Korea issues tax ruling clarifying interest withholding tax exemption on foreign currency denominated bonds
  Korea’s National Tax Service (the NTS) issued a tax ruling (the Ruling)1 clarifying the conditions under which interest on foreign currency denominated bonds (FX bonds) can be exempt from withholding tax, if the FX bonds meet the overseas issuance criteria. The NTS ruled that the term “overseas issuance” would mean a series of actions related to FX bonds issuance that occurred overseas.
d Thailand issues guidance regarding International Business Center regime
  On 3 May 2019, the Thai Revenue Department issued Notification of the Director-General of the Revenue Department under the Royal Decree 674 (the Notification), providing details of the conditions, application procedures and relevant application forms under the International Business Center (IBC) regime. It is effective retroactively from 29 December 2018.1 The Notification provides additional details to the main IBC conditions set forth under the Royal Decree 674.
e Switzerland approves tax reform
  On 19 May 2019, in a popular vote, Switzerland approved the Federal Act on Tax Reformand AHV (Old-Age and Survivors Insurance) Financing (TRAF) as adopted by the Federal Parliament last fall. The tax reform’s objectives include: (i) securing the long-term tax attractiveness of Switzerland as a business location; (ii) restoring international acceptance of the Swiss tax system; and (iii) securing an appropriate level of tax revenue. The tax reform brings the replacement of certain preferential tax regimes with a new set of internationally accepted measures. The legislative changes align with the broad reduction of the cantonal corporate tax rates.
 
2 Income Tax
a Agreement for exchange of information with Marshall Islands notified
  CBDT notifies Agreement for exchange of information between Government of the Republic of India and the Government of Republic of the Marshall Islands vide Notification No. 40/2019 Dated 21st May, 2019.
b CBDT amends Income-tax Rules in Appendix II in Form No 15H
  CBDT inserts proviso in Income-tax Rules, 1962, in Appendix II, in Form No. 15H in Part II, in note 10 vide Income-tax (4th Amendment) Rules, 2019 -Notification No. 41/2019 – Income Tax dated 22nd May, 2019 by inserting a proviso, namely:—
“Provided that such person shall accept the declaration in a case where income of the assessee, who is eligible for rebate of income-tax under section 87A, is higher than the income for which declaration can be accepted as per this note, but his tax liability shall be nil after taking into account the rebate available to him under the said section 87A.”
c Profit Attribution to PE  a game changer
  CBDT has published a “Report on Profit Attribution to Permanent Establishments” on 18-April-2019 and has called for comments within 30 days. In today’s era, the whole world has become a village and various activities of business are being conducted from varying states / jurisdictions. Refer para 52 - Often, a need is emphasized for allocating taxing rights to the jurisdiction where value is created. However, the concept of value is often not clearly elaborated to show how it is related to the different tax bases. For instance, in value added tax or VAT, where the tax base is value addition, it would be more logical to tax the transaction where value is created, and accordingly the adoption of destination based rule reaffirms the principle elaborated in the example of California oranges referred above. However, the tax base in income tax or corporate tax is not value addition, but business profits, and accordingly sales and supply both need to be taken into account as contributors to this tax base. There is a need to bring harmony in the mechanism of attribution of profit to each of the activity.
 
3 Indirect Tax
  GST
a Proposed New GST Return Prototype  Introduction and Key Aspects
  The Goods and Services Tax Network (GSTN) has recently released a web-based prototype of the offline tool of new return system. The said prototype is set to replace the existing mechanism of filing returns (GSTR 1 and GSTR 3B), and shall go live in the coming months.
This proposed prototype is user-friendly and also offers an interactive interface allowing users to navigate through the pages using various functionalities, such as drop-down menus, invoice upload, upload of purchase register for matching with a system-created inward supplies, etc.
We bring to you a summary of the proposed changed based on the prototype released by GSTN on 22nd May 2019.
  DGFT/Customs
a Guidelines for launching of Prosecution in relation to Custom offences
  It was brought to the notice of the Board that there has been a steep rise in the cases of outright smuggling of gold and foreign currency by foreign nationals and these accused persons have no interest/ assets in India; and once released on bail, they are not available to face trial. Therefore, service of Show Cause Notice (SCN) to these foreigners also becomes difficult. Accordingly, it was suggested that ‘foreign currency’ may be added in the list of items mentioned in Para 6 of the Circular dated 23.10.2015 as amended, and where the case relates to foreign nationals, it may be allowed to launch prosecution within 60 days.
Board has examined the matter. Accordingly, it has been decided to substitute Para 6 of the aforesaid Circular with the following, namely,-
“6. Stage for launching of Prosecution: Normally, prosecution may be launched immediately on completion of adjudication proceedings. However, in respect of cases involving offences relating to items, viz. Gold, Foreign Currency, Fake Indian Currency Notes (RCN), arms, ammunitions and explosives, antiques, art treasures, wild life items and endangered species of flora and fauna, prosecution may preferably be launched immediately after issuance of Show Cause Notice under the Customs Act, 1962. Further, in cases involving Foreign National(s), prosecution may be launched at the earliest, even before issuance of the Show Cause Notice.”
b An entity requires only one RCMC from its relevant EPC - DGFT
  Many times questions arise with regard to appropriateness of EPCs issuing RCMCs under para 2.56 of FTP read with 2.94 of HBP. In this regard, it is clarified that:
(i) An entity requires only one RCMC from its relevant EPC as per Appendix-2T. It can keep on adding any number of businesses afterwards and RCMCs from other EPCs will be optional only.
(ii) If an entity, having RCMC for goods from a particular EPC/FIEO, exports services subsequently, there is no need to obtain second RCMC from SEPC(membership with SEPC in such a case is merely optional).
 
4 Company Law
a Form PAS-6 and its Applicability
  MCA notifies Form PAS – 6- Reconciliation of Share Capital Audit Report (Half-yearly) Pursuant to sub-rule (8) of rule 9A Companies (Prospectus and Allotment of Securities Rules, 2014. (All information shall be furnished for the half year ended 30th September and 31st March in every financial year for each ISIN separately)
b Valuation of Startups while raising funds Companies Act 2013
  Under the Companies Act, while raising funds a Startup has to obtain Valuation Report by a Registered Valuer (RV) before issuing following instruments under Private Placement or on Preferential basis [Sec 62(1)(c)], –
- Partly or Optionally or Compulsory Convertible Preference Shares
- Partly Optionally or Compulsory Convertible Debentures
Valuation report is also required when Shares or Securities to be allotted for consideration other than cash [Rule 13(2)(g) of The ], issue of Sweat Equity Shares etc. Article deals with events when valuation report is required and when it is not.
c 4 Latest Company Law - MCA Updates
  - Companies (Appointment and Qualification of Directors) Second Amendment Rules, 2019
- Companies (Removal of Names of Companies from the Register of Companies) Amendment Rules, 2019
- Companies (Incorporation) Fifth Amendment Rules, 2019
- Clarification for form ADT-I filed through GNL-2 under the Companies Act, 2013
 
5 SEBI
a Clarification On Filing Of Annual Reports In XBRL Mode
  In continuation to the Circular to the Companies dated February 08, 2019 with regards tofiling of Annual Report in XBRL mode under Regulation 34 of Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, the following may be noted.
In order to enable ease of business and make filing easier, BSE had adopted the XBRL taxonomy issued by the Ministry of Corporate Affairs, Government of India, for submission of Financial Statements in XBRL mode. All the listed entities can download the XBRL taxonomy from website of Ministry of Corporate Affairs. All the listed entities can submit to the Exchange, the Annual Report prepared using the XBRL taxonomy of Ministry of Corporate Affairs, itself.
b Framework for accreditation of investors for Innovators Growth Platform
  Accredited Investors (AIs) for the limited purpose of Innovators Growth Platform (“IGP”), are investors whose holding in the Issuer Company, is eligible for the computation of at least 25% of the pre-issue capital in accordance with Regulation 283.(1) of the SEBI (Issue of Capital & Disclosure Requirements) Regulations, 2018 (“ICDR Regulations”). Accordingly, the framework for the process of accreditation of investors is detailed in the article.
 
6 RBI
a Voluntary Retention Route for Foreign Portfolio Investors investment
  AD Category – I banks may refer to A.P.(DIR Series) Circular No. 21 dated March 01, 2019 on ‘Voluntary Retention Route’ (VRR) for Foreign Portfolio Investors (FPIs) investment in debt. Based on the feedback received the directions have been revised as given in the Annex. These changes include, inter alia, the following:-
a. Introduction of a separate category, viz., VRR-Combined (see para 2.x, Annex).
b. The requirement to invest at least 25% of the Committed Portfolio Size within one month of allotment has been removed (see para 6.a, Annex).
c. FPI are provided with an additional option at the end of the retention period, viz., continue to hold their investment until the date of maturity or the date of sale, whichever is earlier (see para 6.c, Annex).
 
7 Case Laws
  Income Tax
a Sec 139(5) not applies to revised return filed as per NCLT scheme - Madras HC
  The scheme of arrangement and amalgamation approved by the National Company Law Tribunal under Section 391 of the Companies Act gives statutory force to enable the respective petitioners to file the revised returns of income beyond the prescribed period and Section 139(5) of the Income Tax Act, 1961 is not applicable for cases where revised returns of income have been filed pursuant to approval of scheme of arrangement and amalgamation by the Competent Court. Sec. 139(5) not applicable if revised ITR is filed pursuant to scheme approved by NCLT. The Circular issued under Section income tax act, namely, Circular No.9 of 2015 is not applicable for filing of revised returns of income pursuant to a scheme of arrangement and amalgamation approved by the Court under Section 391 of the Companies Act. Rule 12(3) of the Income Tax Rules which requires filing of revised returns of income electronically is not applicable to cases where revised return of income has been filed by the assessee pursuant to scheme of arrangement and amalgamation approved by the Court.
b Deduction Us 80-IB(10) eligible on unaccounted receipts - Gujrat HC
  The sole surviving question relates to the assessee’s disclosure of unaccounted receipts during the survey operation. The Assessing Officer taxed such receipts with the aid of Section 68 of the Act. Before the higher authorities, assessee argued that this also been the assessee’s income from development of housing project, the same should have been allowed as a deduction under Section 80IB [10] of the Act. The CIT [A] and the Tribunal accepted such proposition, upon which the Revenue has filed this Appeal.
There is nothing on the record to suggest that the assessee had other businesses or that the undisclosed receipts were assessee’s profit out of any other activity other than development of housing project, The Tribunal came to the specific conclusion that the unrecorded consideration was also part of the assessee’s sale transaction of completed residential units and was therefore eligible under Section 80IB [10] of the Act. We do not find any error in such view.
  GST
a Non-availability of mechanism at GSTN portal- Allow Manual credit of ITC - Gujrat HC
  The sole controversy that remains to be decided in the present case is, whether the petitioner is entitled to re credit of the amount of Rs.17,55,13,818/ on the basis of Form GST RFD PMT 03 issued by the respondents in its Electronic Credit Ledger?
Sub rule (2) of rule 93 of the CG&ST Rules provides that where any amount claimed as refund is rejected under rule 92, either fully or partly, the amount debited, to the extent of the rejection, shall be re credited to the Electronic Credit Ledger by an order made in FORM GST PMT O3. For the foregoing reasons, the petition succeeds and is accordingly allowed. The third respondent Assistant Commissioner, CGST and Central Excise, Division I, Surat, is hereby directed to re credit the amount of Rs.17,55,13,818/ to the Electronic Credit Ledger on the basis of Form GST RFD PMT 03. To comply with the provisions of the Explanation to rule 93 of the CG&ST Rules, the petitioner shall file an undertaking as required. In case, it is not possible to re credit the amount to the Electronic Credit Ledger, the petitioner shall be permitted to manually take credit of the aforesaid amount.