International Tax Survey
Understanding the changing dynamics
The international tax landscape in India is dynamic, evolving and – at the heart of much discussion and debate! The reasons for this are many – while India continues to be an attractive investment destination, investors do harbour some apprehensions about the likely positions and approach on the tax issues related to transactions in India. The recent proposed changes with respect to retrospective amendments and General Anti-Avoidance Rules have added greater credence to this belief.
In this context, it was important to launch a survey to gauge the pulse of organisations in terms of how the market perceives the current investment climate in India from a tax perspective, how tax policy could be streamlined to make it more efficient and understanding what critical aspects policy makers should consider to make the system more transparent, effective and less complex.
We have designed the survey around key critical aspects, namely, Intermediate Holding Company (IHC), Permanent Establishment (PE), Foreign Tax Credit (FTC), General Anti-Avoidance Rules (GAAR) and Tax Litigation. The survey then concludes with a perspective on the overall tax policy and litigation aspects.
The reason for including IHC as an important part of the survey is recent discussions on the India-Mauritius treaty and also the approach on IHC. With the ‘substance test’ for IHC - economic and legal - continues to gain importance on both planning and defense, the efficacy of IHC structure assumes importance with attendant cost and benefit analysis. Given this scenario, it was important to know whether organisations still believe that IHC through a tax-friendly jurisdiction continues to be the optimal route to be adopted.
India has witnessed high scrutiny of international tax matters by the tax authorities. The higher scrutiny, in some sense benefited India, as it has in the process contributed some landmark tax decisions to the international tax community. The Vodafone case coupled with the proposed retrospective changes in the law has created uncertainties about the Indian tax landscape in the minds of global investors. In this context, it is also relevant to have a discussion around PE aspects to make the survey more holistic. Directly linked to the discussion around PE, is the issue around FTC. It is important to understand whether it is purely the issue of taxation on account of a PE exposure, or whether it is the way the FTC mechanism is structured that poses the challenge to organisations.
And finally – the survey would not be complete without including a discussion around the proposed GAAR amendments. This has been top of mind for the international community and has invited much comment and more criticism. In response to this reaction, the government constituted the Shome Committee to provide recommendations on theimplementation of GAAR provisions. The Deloitte Tax team also provided detailed recommendations to the Committee, which were very well received.
It is hoped that the survey results will provide an insight into the approach of the global organisations in relationto the key aspects of international taxation in India.