CBDT provides procedural reliefs and clarifications applicable to charitable institutions

This Tax Alert summarizes Circular No. 6/2023 dated 24 March 2023 (Circular) issued by the Central Board of Direct Taxes (CBDT), for extending certain due dates applicable to charitable trusts and other eligible institutions (Charitable Institutions) and various other aspects affecting compliance arising out of certain amendments made by Finance Act 2023.

CBIC issues SOP for scrutiny of GST returns for FY 2019-20 onwards

This Tax Alert summarizes the recent Instruction issued by Central Board of Indirect Taxes and Customs (CBIC) prescribing Standard Operating Procedure (SOP) for scrutiny of returns under Goods and Services Tax (GST) for financial year (FY) 2019-20 onwards.

USA draft law on WHT

 House Republicans introduced a draft law on Thursday that would increase US withholding tax (WHT) on individuals / companies that come from a UTPR country (based on citizenship / incorporation rather than residence reporting here: WHT would increase by 5% at first, but going up to 50% if UTPR is not removed. They call this a ‘reciprocal tax’ or ‘retaliatory tax’. The chances of this making into law during this session of Congress are very slim given Democrat control of Senate and the possibility of a presidential veto.

TP rules of Malaysia

 The TP world has been rocked again – new rules have been published in the Federal Gazette to change the TP landscape. The TP Rules 2023 are effective for YA 2023 onwards.

My initial thoughts are as follows:

1.      The TP Rules 2023 provide additional powers to the Director General ("DG") to make adjustments to controlled transactions. This includes the specific power to adjust the price of controlled transactions to the median of the range under Rule 13 of the TP Rules 2023. Interestingly enough, the DG appears to have the power to adjust the controlled transaction to the median where comparability defects cannot be quantified, identified or adjusted. Taxpayers should take note and plan accordingly.

2.      The redefinition of the term median and the arm’s length range. It is noted that the TP Rules 2023 have provided new rules to the game and defined the arm’s length range to being at the 37.5 percentile up to the 62.5 percentile. The median is instead appears to be defined as the midpoint of the arm’s length range under Rule 13(5)(b).

3.      An integration of elements of the prevailing Documentation Chapter of the Malaysian TP Guidelines into Schedules to the TP Rules 2023.

4.      The TPD’s must be dated now to show the specific date that it has been prepared under Rule 4(2) and must be submitted upon request within 14 days from the date of service of a notice under Rule 5(3)

5.      Methods for selections of the TP methodologies must be supported by proper justification – in the event this is not done, the DG has the right to replace the selected method under Rule 6(3) . This appears to be an attempt to fill an existing gap in law which was an area of contention in TP cases argued at the Courts in Malaysia

6.      Detailed selection of comparable data must now be in any contemporaneous TPD and this includes the basis for selection, which refers to both quantitative and qualitative reasons – Schedule 2 of the TP Rules 2023

7.      Specific rules have been included to address issues regarding intragroup services under Rule 9 and intangible assets under Rule 10

What is Dual & Split Residency

 

What is Dual Residency?
 
As the name suggest, under dual residency an Individual is considered as resident of two countries for the same period according to the residential status conditions of the respective jurisdictions.

Types of Forms to be submit in Returns for USA

The following information returns provide potential sources of taxpayer gross income :

W-2 - Wage and Tax Statement

W-2G - Certain Gambling Winnings

Form 1099-B, Proceeds from Broker and Barter Exchange Transactions

Form 1099-C Cancellation of Debt

Form 1099-DIV - Dividends and Distributions

Form 1099-G - Certain Government Payments

Form 1099-INT - Interest Income

Form 1099-K - Payment Card and Third Party Network Transactions

Form 1099-MISC - Miscellaneous Income

Form 1099-NEC - Nonemployee Compensation

Form 1099-OID - Original Issue Discount

Form 1099-PATR - Taxable Distribution Received from Co-Operatives

Form 1099-Q - Payments from Qualified Education Programs (Under Section 529/530)

Form 1099-R - Distributions from Pensions, Annuities, Retirement or Profit Sharing Plans, IRAs, Insurance Contracts, etc,

Form 1099-S - Proceeds from Real Estate Transactions

Form 1099-SA - Distributions From an HSA, Archer, MSA, or Medicare Advantage MSA

Schedule K-1 (Form 1065) - Partner's Share of Income, Deductions, Credits, Etc,

Schedule K-1 (From 1120-S) - Shareholder's Share of Income, Deductions, Credits, Etc,

SC holds warranty replacement by dealer against credit note issued by manufacturer is exigible to sales tax

 This tax alert summarizes the recent ruling of the larger bench of Supreme Court (SC) on whether replacement of defective parts of cars under warranty by the dealer, against credit note issued by the manufacturer, is exigible to sales tax.

Earlier, SC in the case of Mohd. Ekram Khan had concluded that such transactions were taxable as the manufacturer had made payment for the parts by issuing credit notes to the dealers. Pursuant to the same, Revenue passed orders demanding sales tax on such transaction undertaken by various dealers.

Divergent rulings were passed by various High Courts (HC) on the above issue and hence, cross appeals were filed before the SC to decide the correctness of the judgement in case of Mohd. Ekram Khan (supra).

The key observations of the SC are:

Angel Tax.

The amendment in the angel tax provisions vide Finance Act 2023 bringing foreign investments within its ambit, left a bitter taste with both, foreign investors focused on writing cheques to invest into India's lucrative markets and Indian businesses looking at overseas investors as their biggest carrots to fund their transformative and evolutionary ideas. Although the Government tried to play its cards right by introducing this amendment to curb circulation of unaccounted money, this change ended up throwing the baby out with the bathwater, by adversely affecting genuine investments.

ISSUE OF CARBON CREDIT

 

There was a piece of news a few months ago that India may keep its carbon markets insulated from the international carbon trade under play.

Accounting of Property, Plant, and Equipment (PP&E)

PP&E are tangible assets that are used in the production or supply of goods or services, held for rental purposes, or for administrative purposes. PP&E are typically long-lived assets, with a useful life of more than one year.

Choosing the Right Business Structure for Your US Business

 When starting a business in the US, one of the most important decisions you will make is choosing the right business structure. The business structure you choose will have a significant impact on your taxes, liability, and how you manage your business.

SC ruling on warranty replacement has multiple facets - Key Takeaways..

 

Though the issue before the Hon’ble SC was the one on warranty sale made by dealers on behalf of the manufacturer if subject to sales tax, key observations were made which to me seems important and be explored in different cases.

TCS on foreign credit card.

 

The FEMA Current Account Transactions Rules, 2000 hitherto exempted payments made through International Credit Cards (ICC) towards meeting expenses during an overseas visit, from RBI's approval on exceeding the monetary threshold prescribed. Omission of Rule 7 of the Current Account Transactions Rules brings such ICC payments within the Liberalised Remittance Scheme (LRS) limit which is capped at USD 250,000. RBI's approval is required for remittances made beyond such freely available limit. This amendment, in some sense, not only curtails the overall foreign remittances an individual can make but could also cast an additional cost of 20 percent on the remitter in the form of TCS. The Finance Act, 2023 had enhanced the TCS rates applicable on remittances made other than for education and medical purposes to 20 percent. Although a credit for such taxes can be claimed at the time of return filing, individuals could face cash flow/ working capital issues, due to timing difference between the point of taxation and subsequent tax refunds, which would be available only after the tax return is processed. For business spends made by an individual, which are later reimbursed by the employer company, TCS is bound to be an added hassle.

Methodology for collection of taxes is yet to be prescribed, not sure if credit card companies/ operators/ issuers, would be responsible for this, based on guidance set by the RBI. International purchases on internet/ web vis-a-vis foreign spends while travelling abroad are equally in vague and needs to be clarified.

Automated Return Scrutiny Module for GST Returns!

 Central Board of Indirect Taxes & Customs (CBIC) Implements Automated Return Scrutiny Module for GST Returns!

In a groundbreaking move, Union Minister for Finance and Corporate Affairs, Smt. Nirmala Sitharaman, has directed the swift rollout of an Automated Return Scrutiny Module for GST returns. This cutting-edge system has just been launched on the ACES-GST backend application for Central Tax Officers.

Indian Banks Block NRIs from Repatriating Profits from LLPs

In recent months, some Indian banks have blocked NRIs from repatriating profits from LLPs. This is a significant change, as profits from LLPs were previously considered current income and could be repatriated without restriction.

Date of issuance of debit note

 Date of issuance of debit note to determine the relevant financial year for the purpose of section 16(4)

Section 16(4) was earlier amended (with effect from 01.01.2021) vide the Finance Act, 2020, so as to delink the date of issuance of debit note from the date of issuance of the underlying invoice for purposes of availing ITC.

GST AMENITY SCHEME.

 

The Central Board of Indirect Taxes and Customs (CBIC) on May 17, 2023, issued a circular regarding the Amnesty Scheme for one-time settlement of default in export obligation by Advance and EPCG authorization holders with reference to Notification No. 32/2023-Customs dated April 26, 2023, to amend 13 Customs notifications pertaining to Advance Authorization (AA) and Export Promotion Capital Goods (EPCG) Schemes.

SC judges differ on invocation of doctrine of legitimate expectation with respect to sales tax incentive

 This tax alert summarizes a recent ruling of the Supreme Court (SC) on invocation of doctrine of legitimate expectation against removal of exemption granted to persons engaged in blending of tea under the West Bengal Sales Tax Act, 1994.

Karnataka HC holds hosting the game of rummy on online platform is not in the nature of betting or gambling

 

This tax alert summarizes the recent ruling of the Karnataka High Court (HC) on whether online games, such as rummy, played with or without stakes, tantamount to “betting” or “gambling”.

Petitioner in the present case is an online intermediary company, operating technology platforms that allow users to play online games, such as rummy, against each other, and charges a certain percentage of buy-in amount as its platform fee.

Revenue issued show cause notice (SCN) on the petitioner alleging that it is involved in betting/ gambling and is misclassifying its supplies to its customer as services instead of actionable claims (i.e., goods). Further, the taxable value declared by it is also incorrect. Aggrieved, petitioner filed writ petitions before the Karnataka HC.

The key observations of the HC are summarized below:

Supreme court upholds validity of pre-import condition under Advance Authorisation scheme

 This tax alert summarizes a recent ruling of the Supreme Court (SC). The question involved was whether the pre-import condition for claiming exemption of integrated tax and compensation cess on import of goods against Advance Authorisation (AA) is arbitrary and unreasonable.

Gujarat High Court (HC) had struck down the pre-import condition contained in para 4.14 of Foreign Trade Policy 2015-2020 (FTP). Aggrieved, Revenue preferred an appeal before the SC.

SC upheld the validity of pre-import condition under Advance Authorization (AA) scheme on the following grounds:

Taxation of actor & sportsperson in UAE.

 

The world of entertainment and sports has been abuzz lately with talk of the United Arab Emirates (UAE) corporate tax and its potential implications on the industry. The tax treaties between the UAE and other countries such as India or the UK have determined that the income derived by overseas-based entertainers - by performing in the UAE - is taxable in the country, regardless of whether it accrues to the entertainer or another person

While the scope of an entertainer is not limited to movie actors, it covers individuals working in the theatre, motion picture, radio or television, and music industries. Any individual in a similar profession in the UAE could find themselves impacted by corporate tax. Even a one-off performance in the UAE could attract corporate tax if the entertainer is not regularly present in the country.

The same tax position that applies to entertainers also applies to sportsmen exercising their activities in the UAE. The corporate tax could become an additional compliance point for the sports industry in the future, similar to the VAT implications that were discussed for cricketers playing in the UAE for the Indian Premier League in 2020.

It is important to note that corporate tax and VAT are distinct from each other. While VAT provides an alternative of reverse charge mechanism (RCM) on the UAE payer to settle the VAT liabilities of an overseas entertainer, the corporate tax laws do not have any direct alternative for such individuals. Withholding tax is a concept that applies to corporate tax laws but does not appear to be an alternative to the obligations of a taxpayer.

The taxation of entertainers and sportsmen is a global issue, and different countries have formulated comprehensive domestic policies to address the issue. For instance, in India, payments for such activities are subject to a withholding tax of 20%, and the entertainer/sportsman is not required to obtain separate tax registration. Specific exemptions have also been provided to non-residents for shooting movies in India.

Currently, the UAE corporate tax does not provide any exemptions to the entertainment or sports industry. However, as the UAE continues to grow as a hub for both industries, it is expected that the tax policy will comprehensively address the issue. The entire entertainment industry should take note of the UAE tax implications for activities performed in the country, especially since the cabinet decision on business activities undertaken by an individual could potentially impact them.

Why DTAA prevails over Income tax act?

 

The provisions of the Income-tax Act, 1961 ('the Act') and the Double Taxation Avoidance Agreement ('DTAA') have been a subject of debate and discussion in the tax community. One of the major issues is whether the provisions of section 90 of the Act are inconsistent with the provisions of sections 4 and 5 of the Act and whether the provisions of the Act will prevail over the provisions of the DTAA in case of any inconsistency.

Non-Compliance of E-Invoicing by your Suppliers - Risk to Your ITC Claim

 

On May 10th, 2023, the Indian government issued Notification No. 10/2023 – Central Tax, announcing a significant reduction in the threshold limit for E-Invoicing. Effective from August 1st, 2023, the threshold limit for E-Invoicing has been lowered from Rs 10 Crores to Rs 5 Crores. As a result, any person with a turnover exceeding Rs 5 Crores during any financial year commencing from 2017-18 is now required to generate invoices electronically.

GST input credit when Vendor GST registration cancelled

 

Introduction:

The Goods and Services Tax (GST) authorities are currently conducting inquiries into the input tax credit (ITC) claimed by taxpayers in cases where the registration of their suppliers has been retrospectively cancelled. These inquiries have resulted in demand notices being issued, proposing the recovery of ITC, along with interest and penalties. This article examines the background of this issue and the views surrounding it.

Why Estonia?

 Estonia is kickass country to register your startup in…

👉🏼 Firstly, the tax structure is as simple as 20-20-20.

There’s 20% Income Tax, 20% Corporate Tax and 20% VAT

The VAT applies if your annual turnover is more than EUR 40k = INR 36L

👉🏼 But here’s the main reason. If the profits of your company are not withdrawn but retained in the company for growth, there are no taxes on the profit.

It only gets taxed when you distribute those profits to the shareholders. This is insane!

👉🏼 Okay there’s more. No dividend tax, so no double taxation either.

There is just a fixed monthly expense paid to the government which is like a Provident Fund and Pension Fund, which you pay in other countries anyway.

👉🏼 Ease of Business: The country has a zero bureaucracy policy…

👉🏼 You can set up a company in less than 4 hours within EUR ~400, all online. That’s in less than INR 40k

👉🏼 Banks share real time information with the tax department and there’s a single accounting software for all transactions across the country.

So, your tax returns actually happen in less than 20 minutes, all automated, because all the data is already pre-entered and validated.

👉🏼 The owner of the company can be a non resident of Estonia… and both the owner and the operator can be the same. They also have a provision of Electronic Tax Residency in case someone is interested

👉🏼 Now forget business, let’s talk about the social benefits for people actually living there…

👉🏼 Free public education, free public health and free public transportation

👉🏼 Moreover, Internet access is a fundamental human right

👉🏼 Okay, now which kind of business should register in Estonia? The country and the government prides itself in being a digital leader where they claim that all their public records are on a safe digital blockchain.

And anyone wanting to do e-commerce or other tech business in Europe should consider setting up base here for the sheer operating ease and tax benefit.

However, if you have no business in Europe, um, it’s just good info to know for your next global business idea, but don’t go around registering a company just like that.