Indian Tax Scenario: An International PerspectiveBackground. 3 amarchand mangaldas Privileged &...

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November 29, 2006

Indian Tax Scenario: An International Perspective

ByAseem Chawla

Director-Taxation

Amarchand & Mangaldas & Suresh A. Shroff & [email protected]

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Privileged & Confidential November 29, 2006

Contents

Indian Tax Laws vis-à-vis Tax Treaty Principles

Destination India : Choice of Jurisdiction

Fiscal Reforms : A Continuous Process

Background

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Background

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Slow rate of growthBureaucraticProtected and slowSmall consumer marketsUnderdeveloped infrastructure

One of the fastest growing world economiesReasonably proactiveOpening up of sectors for investmentPromising consumer marketsSignificant investment in infrastructure creation for industry

YESTERDAY

TODAY

India Witnessing TransformationGDP growth (%)

6.1

4.4

5.8

4

8.5

6.9

1999-00 2000-01 2001-02 2002-03(P) 2003-04(Q) 2004-05(A)

Performance in Q1 of the current year 06-07 far exceed expectations by registering 8.9% strong GDP growth rate Possible due to 31% rise in Bank credit, 32.2%increase in aviation passenger traffic, 36.2% growth in commercial vehicles, 48.9% jump in telephone connections

► The rise in FII inflows coincides with increase in number of FII’s registered with the Securities and Exchange Board of India (“SEBI”)

► FII’s registered with SEBI based out of more than 28 countries around the world with USA constituting the majority

Net FII Inflows

1461

2807

753

6594

8519

3872

2000 2001 2002 2003 2004 2005*

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Indicators suggesting sustained high growth… Foreign

Institutional Investment

Reaches $ 40 B in 2005 and expected to touch $50 B mark by the end

of 2006 GDP Growth

One of the fastest

growing economies with annual GDP growth

of 7%-8%

Stock Market Boom

One of the best performing emerging markets

M&A Activity

Value of M&A deals: $3.7 B

Foreign Direct

Investment

Cumulative $38.91 B between 1991 and 2006

Foreign Exchange Reserves

Reached $139.2 B as on January 2006 FDI

Confidence Index

AT Kearney ranked India

10th

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Fiscal Reforms : A Continuous Process

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Fiscal/Taxation reforms

Fiscal Deficit <3%

Speedier Adjudication of

direct tax matters

Uniform Sales tax/ Cenvat

VAT introduced from April 2005

Continuous review of tax policy & administration

Customs tariffs reduction of slabs

in last 2 yrs

Significant appreciation of

international tax issues

GST proposed to be introduced from April

2010

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Destination India : Choice of Jurisdiction

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Comparison between various tax regimes

* Dividend Distribution Tax @ 14.025%

India has a treaty network with over 75 countriesDepending upon business expediency, a suitable jurisdiction with low withholding tax costs can

be identified to route investments into India

JurisdictionMauritius

Dividends Nil* Nil*

Capital gains on disposal of shares

Nil Nil Nil

Interest 0%/ 20.91% 0%/ 10% 5%/ 12.5%

Royalty 10.46% 10.46% 10%

Cyprus UAENature of Income

Nil*

Nil

0%/ 10%/ 15%

10%

Singapore

Nil*

As per Indian tax Laws

0%/ 10%/ 15%

10%/ 15%/ 20%

USA

Nil*

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India: Share of FDI Inflow

Source: Secretariat of Industrial Assistance, Department of Industrial Policy & Promotion, Government of India

13,289.80

5,301.51

2,153.112,071.11 2,058.45

1,609.69 1,482.66 814.61771.46 654.86

0

Maurit

ius

USA

Japan

Netherl

ands

UK

German

y

Singapore

France

Korea

(South)

Switzerl

and

US$

Mill

ion

Aug 1991 to July 2006

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Government of India is empowered under Section 90 of the Act to enter into Double Taxation Agreements with other States

Choice of beneficial provisions available under Section 90(2) ofthe Act

Scope of Section 5 and Section 9 comes into play if the income accrues or arises in India, will subsequently attract relevant treaty provisions.

Unilateral relief in case of twice taxed Income - Section 91

In cases where India has no tax treaty with the other country -relief available on taxes paid

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Conclusion

- Ray August

“For legislators writing national tax laws and business managers developing an international development strategy for their companies, it is vital to understand that double taxation, double taxation relief, tax incentives and tax sharing, as well as tax laws of home and host countries, all interact to form a matrix of international tax law. For every goal that may be achievable by tax legislation, there are always potentially adverse consequences depending on the mechanism chosen.”

Indian Tax Scenario: An International PerspectiveBackground. 3 amarchand mangaldas Privileged &...

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