NEWSLETTER

PUNE BRANCH OF WIRC OF ICAI

ISSUE NO. 05 - SEPTEMBER 2017(Subscribers copy not for sale)

NEWSLETTER

PUNE BRANCH OF WIRC OF ICAI

Foreign Direct InvestmentThebestpreparationfortomorrowisdoingyourbesttoday.

PUNE BRANCH OF WIRC OF ICAI

SR. NO.

DATE SEMINAR

NAME VENUE TIME FEES

CPE HRS.

1 4th, 5th & 6th

November, 2017

Women CA’s RRC Under Finalisation

2 18th & 19th Nov, 2017

National Conference on Co-operatives

Hotel Sheraton Grand (Le

Meridien), Raja Bahadur Mill Road, Pune

411001

9.30 Am to 5.30 PM

Update Shortly

12 Hrs

3

8th, 9th & 10th

December, 2017

Inter-Firm One Act Play

Competition

Jawaharlal Nehru Auditorium, Ghole Road,

Pune

Under Finalisation

(Applications are invited)

Notes:-

1) Programme timing includes 1st half an hour Registration & Breakfast.

2) For online registrations & detailed programme structure visit

www.puneicai.org

Forthcoming Programs

Thebestandmostbeautifulthingsintheworldcannotbeseenoreventouched-theymustbefeltwiththeheart.

2

We are glad to inform you that he has been

appointed as Vice Chair of Asian Oceania Standard

Setters Group (AOSSG) from November 2017. This

is a group of 26 countries in Asian Oceanic Region

for setting Accounting Standards. This group will

lead for framing International accounting standards

and work closely with international institutions. He

will be Vice Chair for next 2 years (2017-19) and

thereafter he will take over as Chair for subsequent

2 years (2019-21). This is first time that India has

been recognized for this prestigious post. This

appointment is on behalf of The Institute of

Chartered Accountants of India, New Delhi.

CONGRATULATIONSCONGRATULATIONS

CA. S. B. ZAWARECentral Council Member, ICAI

Happinessisnotsomethingyoupostponeforthefuture;itissomethingyoudesignforthepresent.

3

Good,better,best.Neverletitrest.'Tillyourgoodisbetterandyourbetterisbest.

4

Prizes for Participants

Online Test

• 1st Rank holder will be awarded with Rs 1,00,000/- for Class X, Class XI & Class XII separately, if multiple winners are there, the prize

amount will be shared by them. If more than 50 joint rank holders for the same, the awardee will at least awarded with the cash prize of

Rs 2,000/-.

• 2nd Rank will be awarded with Rs 50,000/- for Class X, Class XI& Class XII separately, if multiple winners are there, the prize amount will

be shared by them. If several joint rank holders for the same are there, the awardee will at least awarded with the cash prize of Rs 1,500/-.

• 3rd Rank will be awarded with Rs 25,000/- for Class X, Class XI& Class XII separately, if multiple winners are there, the prize amount will

be shared by them. If several joint rank holders for the same are there, the awardee will at least awarded with the cash prize of Rs 1,000/-.

• Top 250 consolation prizes will be awarded worth Rs500/- for Class X, Class XI& Class XII separately

• Appreciation certi cate to the candidates who have secured 50% marks in the aforesaid online test.

• Participation Certi cate will be given to each participant appeared for the aforesaid online test.

Introduction

Foreign Direct Investment (FDI) is considered to be the lifeblood of economic development especially for the developing and underdeveloped countries. It plays an important role in the long-term development of a country not only as a source of capital but also for enhancing competitiveness of the domestic economy through transfer of technology, strengthening infrastructure, raising productivity and generating new employment opportunities.

On the basis of previous facts and figures it is proved that India has been an eye catching land for business opportunities. It is also an intention and objective of the Government of India through a major national initiative called “Make in India” to attract and promote foreign direct investment in order to foster innovation, enhance skill development, supplement domestic capital and technology for accelerated economic growth. There has never been a better time to Make in India ever before. The FDI inflow into India is an increasing trend post liberalization regime and incorporating a Company in India is one of the modes of operating business, which is advisable.

Foreign Direct Investment in India means investment in shares, debentures or preference shares by a person resident outside India or an entity incorporated outside India. These investments are undertaken in accordance with the FDI Policy of the Government of India and Master Directives issued by RBI.The Department of Industrial Policy and Promotion, Ministry of Commerce and Industry, Government of India issues a “Consolidated FDI Policy Circular” on yearly basis elaborating the policy and the process in respect of FDI in India.

Entry routes and eligible investors

Investments can be made by non-residents in the equity shares / fully, compulsorily and mandatorily convertible debentures / fully, compulsorily and mandatorily convertible preference shares of an Indian company, through the Automatic Route or the Government Route.

Automatic Route: Foreign Direct Investment in sectors/activities permitted under automatic route does not require prior approval of Government or RBI. The automatic route allows Indian companies engaged in various industries to issue shares to foreign investors up to 100% of their paid up capital in Indian companies.

Government Route: Foreign Direct investment in activities not covered under automatic route requires prior approval of the Government of India, Department of

FOREIGN DIRECT INVESTMENT IN INDIAN COMPANIES[FDI]

Contributed By :- CS. Ganesh HedauEmail :- csganeshhedau@gmail.com

1.Optimismisthefaiththatleadstoachievement.Nothingcanbedonewithouthopeandcon�idence.

5

Economic Affairs (DEA), Ministry of Finance or Department of Industrial Policy & Promotion, as the case may be, for the investment.

Eligible investors:

The FDI policy prescribes additional pre and post conditions to be fulfilled in case the investors are Overseas Corporate Bodies, NRIs, residents and citizens of Nepal and Bhutan. Further it may be noted that investment by the citizen of or an entity incorporated in Bangladesh/Pakistan requires prior approval.

However, care must be taken in consideration to the sectors and the guidelines with respect to FDI policy in force at the time of investment.

Investment in Indian Companies

Foreign national or foreign entity can invest by way of equity participation or capital contribution in new or existing companies registered in India.

In India, Company Registration and Administration are regulated by The Companies Act, 2013. A Company can be registered as a Private Limited Company or Public Limited Company. Private Company is a closely held Company and can frame its own rules and bye laws. Public Company is a Company, where public is interested and is heavily regulated in India.

Further, if investment in a Company is being made by a Foreign National / Foreign entity, then compliance with regulations prescribed by Reserve Bank of India is necessary.

How to form Company with FDI?

A Company to be incorporated in India by foreign national or foreign entity may be either Private or Public Company. However, it is more considerable and suggested to form private limited company in case there is no intention of public involvement in India.

Process flow of registration of a Company

1.Digital Signature Certificate(DSC) & Directors Identification Number (DIN)

For filling/making application to the Ministry of Corporate Affairs (MCA), all the proposed Directors will have to apply for the DSC and then apply for the DIN with MCA.

However, in case of foreign nationals, the supporting documents required to obtain DSC and DIN need to be self-attested and further attested by the Consulate of the Indian Embassy, Foreign public notary. In case of a proposed director, supporting documents can also be attested by Company

Youcan'tcrosstheseamerelybystandingandstaringatthewater.

6

secretary in full time employment /CEO / Managing director of the Indian company in which he / she is proposed to be a director.

2.Name Application

An application in e-form INC-1 needs to be filed with the MCA containing 6 proposed names in preference/priority along with their meaning and significance of each word.

In case foreign entity is proposing to incorporate a company, the following additional precautionary measures/documents will have to be arranged:

Board resolution authorizing the Director, Officer or Employee of the Parent Company for signing the company formation / incorporation documents on its behalf.

Certificate of Incorporation / Registration Certificate.

Important note:

As a precautionary measure, it is advisable to take aforesaid documents duly notarized or apostilled in the home country wherein the foreign entity is registered.

At the time of name reservation, it is important to check with the availability of the proposed name with the public records of the Ministry of Corporate Affairs and one must also go through the naming guidelines. Improper/identical use of words in the proposed name of the Company may lead to rejection of application by the Registrar.

3.Incorporation

Once the name is made available by the ministry, memorandum of association, articles of association and other declarations, affidavit, verifications, are required to be drafted & signed by each - subscribers and Directors.

Points to be noted

a. Where the subscriber to the memorandum is a body corporate, the memorandum and articles of association shall be signed by the director, officer or employee of the body corporate, duly authorized in this behalf by a resolution of the board of directors of the body corporate. The said body corporate has to appoint authorised representative (nominee) to comply with the statutory minimum requirement of the members for the proposed company.

However the person so authorized (nominee) shall not, at the same time, be a subscriber to the memorandum and articles of association of the proposed

Settinggoalsisthe�irststepinturningtheinvisibleintothevisible.

7

company.

b. Following precautions to be kept in mind where subscriber to the memorandum is executing the aforesaid documents outside India -

In a country in any part of the Commonwealth, his signatures and address on the memorandum and articles of association and proof of identity shall be notarized by a Notary (Public) in that part of the Commonwealth.

in a country which is a party to the Hague Apostille Convention, 1961, his signatures and address on the memorandum and articles of association and proof of identity shall be notarized before the Notary (Public) of the country of his origin and be duly apostillised in accordance with the said Hague Convention.

in a country outside the Commonwealth and which is not a party to the Hague Apostille Convention, 1961, his signatures and address on the memorandum and articles of association and proof of identity, shall be notarized before the Notary (Public) of such country and the certificate of the Notary (Public) shall be authenticated by a Diplomatic or Consular Officer empowered in this behalf under section 3 of the Diplomatic and Consular Officers (Oaths and Fees) Act, 1948 (40 of 1948) or, where there is no such officer by any of the officials mentioned in section 6 of the Commissioners For Oaths Act, 1889 (52 and 53 Vic.C.10), or in any Act amending the same.

If the subscriber visits India and intends to incorporate a company, in such case, apostille is not required, provided he/she is having a valid Business Visa.

After drafting, signing and apostillisation of the memorandum, articles of association, declarations, affidavit and verifications, all these will be filled in e-forms with the MCA and necessary fees and stamp duty needs to be paid thereon. The quantum of fee and stamp duty depends on the amount of authorised share capital and the State in which the company is being incorporated.

Further, in order to improve the Ease of Doing Business for newly incorporated Companies, CBDT has tied up with MCA to issue Permanent Account Number (PAN) and Tax Deduction Account Number (TAN) in 1 day at the time of making application for registration.

Once, the Company is incorporated, it has to open a bank account and remit the amount of investment in the Company's bank account through proper banking channel within 60 days from the date of incorporation and issue share certificates to the shareholders. The Company can obtain other Government registrations like Local Licenses, Import Export Code, and GST etc. These registrations may vary according to the nature of the business of the Company.

Compliance and reporting with RBI

As per RBI regulations, the Indian Company needs to report the investments from

Knowingisnotenough;wemustapply.Willingisnotenough;wemustdo.

8

foreign sources to RBI whenever a share or debenture is issued under FDI policy. The amount of consideration including each call payments and each upfront payment needs to be reported to the regional offices of RBI through AD Category 1 Banks. This reporting to RBI needs to be done within 30 days from the date of receipt of payments in the advance reporting form which can be downloaded from the RBI website.

a. Reporting of inflow of funds

Once the amount of investment in the company's bank account is remitted through proper banking channel, the company will obtain Foreign Inward Remittance Certificate (FIRC) from the bank. We need to take care of the currency exchange rates and bank charges before remitting the capital amount. The amount to be received shall be equal to or more than the proposed paid up capital. The excess receipt of capital needs to be refunded in compliance with FDI guidelines. It may please be noted that maximum mishaps happen while transferring the funds from foreign banks to Indian banks especially when both the banks are under different organization and they are not ventured for such fund transfer. A rigorous follow-up with the Authorized Dealer bank is necessary with respect to issuing FIRC and the details mentioned on the same like name of the remitter, place of remitter, purpose, details of remitting bank etc.

A copy of foreign inward remittance certificate along with the KYC details needs to be filed with the Reserve Bank of India through Authorised Dealers bank within 30 days of the receipt of funds. The details mentioned on the FIRC need to be verified before submission.

On receipt of the FIRC intimation by the RBI and if no queries on the same, RBI allots unique identification number (UIN) for the said remittance. Then the Company should convey board meeting, pass a resolution for allotment of shares and issue share certificates to the investors, pay requisite stamp duty on the share certificates issued as per the respective state laws, obtain a certificate from a Company Secretary in Practice with respect to the route and other compliances being made.

In case of wholly owned subsidiary incorporated by the foreign entity, the compliance with respect to the appointment of registered owner (nominee) will have to be taken care of and respective e-forms shall be submitted to the ROC.

b. Reporting of Issue of SharesAfter receipt of the consideration and reporting the same through filing of FIRC, it is the obligation of the Indian company to issue the shares/debentures within 180 days of receipt of the Inward Remittance. However, as per the provisions of the Companies Act, 2013 the shares must be issued within 60 days from the receipt of funds.

Opportunitydoesnotknock,itpresentsitselfwhenyoubeatdownthedoor.

9

F i le fo rm FC-GPR du ly fi l led up and s igned by Manag ing Director/Director/Secretary of the company along with Company Secretary Certificate, allotment resolution and certified copy of FIRC to the Reserve Bank of India within 30 days from the date of allotment through Authorized Dealer bank. On receipt of the FC-GPR by the RBI and if no queries on the same, RBI allots a FDI registration number for the said remittance and the same is to be used for future reporting with RBI.

Quarterly/Yearly Compliancesas per Companies Act, 2013

After the formation of Company in India, every company shall be required to follow the provisions of the Companies Act, 2013 and rules made thereunder.

Quarterly Compliances:

As per the provisions of the Companies Act, 2013, every company needs to hold minimum of four quarterly board meetings considering the maximum time gap of 120 days between two meetings.

However, in case the Company is having only two directors out of which one is foreign resident, in such case, difficulty may arise to convene a board meeting as minimum two directors are required to constitute proper quorum.

Further, the board meeting may be convened through electronic means by Video conference, but the Companies Act has restricted some of the business items which cannot be transacted through this mode and needs to be transacted through physical meetings only.

Yearly Compliances:

Every year the Company is mandatorily required to hold Annual General Meeting (AGM) of the shareholders of the Company. Minimum 2 shareholders physical presence at the registered office of the Company is required to constitute a valid quorum for holding AGM. In case of foreign entity holding 100% shares, in such cases one authorized representative and the nominee appointed can be a valid quorum to convene the said annual general meeting.

In case the shareholder being individual residing outside India, he/she may need to travel India every year to attend AGM.

Changeyourlifetoday.Don'tgambleonthefuture,actnow,withoutdelay.

10

Transfer pricing – redefined across the globe The new era in transfer pricing has begun. This new age of transfer pricing as well as overall international taxation domain will be marked with increased transparency and at the same time increased compliances for multinational enterprises (MNE) all over the globe.

The start of key developments in the transfer pricing and international tax arena dated back to the year 2013. The Organization for Economic Co-operation and Development (OECD) estimated that tax avoidance through base erosion and profit shifting has resulted in loss of tax revenue to the tune of $100-240 billion every year - that is around 4-10% of global corporate income tax revenue.In the light of these alarming facts, in July 2013, the OECD and G20 released an Action Plan on Base Erosion and Profit Shifting (BEPS), listing 15 focus areas for potential change in international tax rules and treaties.

As a result of an extensive exercise for more than two years, in October 2015, the OECD presented a set of final reports on these 15 action plans which aimed at curbing the perceived tax planning and tax avoidance practices by Multinational Groups/Companies and is considered to be one of the most fundamental changes in the international tax framework of this century. Importantly, developed as well as developing countries across the globe were a part of this project along with international organizations such as the International Monetary Fund, the World Bank and the United Nations. It is also observed that more than 12,000 pages of comments were received on 23 discussion drafts published by the OECD.Countries across the globe were never seen so aligned in the past for the purpose of curbing base erosion and profit shifting.

In principle, the BEPS Action Plan aims to ensure that profits are taxed where economic activities generating the profits are performed and where value is created.

From transfer pricing perspective, the following key developments deserve a close attention from the MNEs as well as consultants:

A) Enhanced documentation coupled with increased transparency Action Plan 13 (transfer pricing documentation and Country-by-Country (CbC) reporting) of the BEPS Project significantly enhanced the existing documentation requirements for MNEs. Action Plan 13 provides for a three tier documentation structure consisting of the following:

•Master file - Intended to provide a high-level overview of the group's transfer pricing policies and global business operations.•Local file - Intended to provide comprehensive information relating to specific

INTERNATIONAL DEVELOPMENTS AND ISSUES IN TRANSFER PRICING

Itisbettertofailinoriginalitythantosucceedinimitation.

11

Contributed By:- CA Meghnand Dungarwal

Email: - meghnand.dungarwal@skparekh.com

inter-company transactions pertaining to the respective country. • CbC reporting - Intended to provide high-level transfer pricing risk assessment

information.

This enhanced documentation requirement, especially the CbC reporting, would allow tax authorities globally to perform high-level transfer pricing risk assessments and evaluate other BEPS-related risks. With the introduction of CbC reporting and the mechanism for automatic exchange of CbC reports among tax jurisdictions, tax authorities throughout the world will be able to ascertain how an MNE group structures its operations and supply chain, and allocates its income and tax payments to a specific country. These details will also serve as an essential tool for tax authorities to identify and select companies to be audited.

The CbCR requirements are almost operationalised now across the globe. At the home front, India was also a participant in this OECD initiative and has actively contributed in all discussions and framing the Action Plans. To demonstrate India's commitment to the BEPS Action Plans, the Indian Finance Act, 2016 has adopted OECD's framework under Action Plan 13. The revised transfer pricing documentation and CbC reporting is made effective from the financial year 2016-17 applicable to multinational enterprise groups having a consolidated turnover exceeding Euro 750 million for the preceding year. The first compliance for the above period would have to be made by 30 November 2017, which is the due date for filing tax returns by MNE entities in India.

By now, larger MNEs have started collating the group wide financial and economic details for the purpose of complying with CbCR requirements implemented by various countries. At the same time, small and mid size MNEs are gearing up for aligning their transfer pricing policies with the value creating activities spanned across group entities.

B) Aligning transfer pricing with economic value creating activities Action Plans 8-10 of the BEPS project are inter-linked in terms of the objectives they intend to achieve, namely, ensuring that transfer pricing outcomes are aligned with value creation. The respective objectives are presented as below:

Successisgettingwhatyouwant,happinessiswantingwhatyouget.

12

Risks and Intangibles The group companies performing important functions, controlling

economically significant risks and contributing assets in development, enhancement, maintenance, protection and exploitation (DEMPE) of intangibles will be entitled to an appropriate return reflecting the value of their contributions.

Legal ownership alone does not necessarily generate a right to all (or in fact any) of the return that is generated by the exploitation of the intangible.

Contractual arrangements should be respected only if supported by actual conduct of the parties. Thus, conduct of parties would override the actual contractual terms between the parties.

Risks contractually assumed by a party that cannot exercise meaningful and specifically defined control over the risks, or does not have the financial capacity to assume the risks, will be allocated to the party that does exercise such control and has the financial capacity to assume such risks.

The capital rich member of the group, providing funds without controlling the risks associated with its funding, will not be allocated the profits associated with the risks and will be entitled to no more than a risk-free return.

Intra-group Services With respect to the widely adopted transactions of management fees and head office expenses, the OECD has enumerated an elective and simplified approach for the low-value adding intra-group services. Key features of the simplified approach are:

The guidance defines low value adding intra-group services, which include accounting and auditing, processing and managing account receivables, payables, HR matters, IT support, public relations support activities, etc.

Activities which include all services that constitute the core business of the

It is worthwhile to note that Action Plans 8, 9 and 10 are the most talked about, and the OECD has released the largest number of discussion drafts on these compared to any other action plans. These three action plans will directly impact the outlook of the global transfer pricing scenario, in the near future.

The OECD's work in the context of Actions 8 to 10 of the Final Report includes almost 200 pages of guidance covering several key transfer pricing areas. These include: 1) The accurate delineation of inter-company transactions; 2) transactions involving intangibles; 3) commodity transactions; 4) low value adding intra-group service transactions; 4) cost contribution arrangements and 5) future work to be completed on the transactional profit split method.

Key Takeaways from the OECD's Guidelines Some of the key takeaways from the OECD's guidelines under BEPS Action Plans 8-10 are:

Don'tspendtimebeatingonawall,hopingtotransformitintoadoor.

13

MNE group, research and development services, manufacturing and production services, sales, marketing and distribution activities, etc. will not be considered as low value adding intra-group services for the purpose of the simplified approach.

Allocation of the cost pool to MNE group members which reasonably reflects the level of benefit expected by each recipient of the service.

A standard mark-up of 5% on costs (excluding the pass-through back to back costs) to be allowed for all categories of services, which may not require a justification by way of separate benchmarking.

Simplified benefit test documentation for all service recipients.

Action Plans 8 to 10 – An Indian Perspective

India has always believed that transfer pricing outcomes should be aligned to value creation and that the substance of a transaction and the conduct of parties would override the form/contractual arrangement. In a sense, the BEPS Action Plan 8-10 are a shot in the arm for the Indian tax authorities and affirms their long-standing position.

Over the years, the Indian tax authorities have shifted their focus to the principal transfer pricing issues, such as aligning functional analysis with the remuneration model, allocation of the location savings and the use of profit split method in case of integrated value chain models of the MNE group, etc. The tax officers are increasingly interested in studying the entire value chain of an MNE group. The transfer pricing aspects of intangibles were also debated and contested in the recent rounds of transfer pricing assessments and India has also attempted to define intangibles in an extensive manner encompassing marketing intangibles, assembled work-force, customer contracts, etc. Furthermore, from a statutory inclusion of principles point of view, India has already given consent to the OECD's guidelines by way of:

Introduction of section 286 of the Income Tax Act, 1961 for implementation of Action Plan 13 and

Giving a consensus for adoption of Action Plan 8-10 and 13 as part of G20 summit.

This section analyses the impact of Action Plan 8-10 on various forms of inter-company transactions in the Indian context:

1.Indian R&D centersGlobalisation has led many MNEs to establish R&D centers in India. Most of these centers are typically set up as contract R&D service providers, not eligible for intangible related returns, and are typically remunerated on a cost plus basis. There has been a fair amount of controversy on the transfer pricing issues regarding the R&D centers. India has already asserted the importance of economic ownership with legal ownership and has clarified its position in Circular 6/2013 addressing transfer pricing aspects regarding the development centers. The Circular states that

Itishardtofail,butitisworsenevertohavetriedtosucceed.

14

where significant economic activity, related to the development of intangibles, takes place in India, important strategic decisions are taken by management and employees of the Indian company. Accordingly, the Indian subsidiary exercises control over operational and other risks. In this context, a routine cost plus mark-up would not reflect an arm's length price for the services rendered. The guidelines clearly follow the principle outlined in the OECD's guidance.

2.Indian Distributors Indian related party distributors of MNEs typically operate exclusively for selling

the g roup ' s fin i shed produc ts in Ind ia and a re economica l l y characterised/remunerated in one of the following ways:

a. A Limited Risk Distributor – implying that the Indian distributor would undertake minimal or no risk at all and is remunerated with a fixed/targeted net margin.

b. A full fledged distributor – implying that the Indian distributor undertakes wider selling and marketing functions as well as all market, inventory, and credit risks. Typically, the arm's length price of purchases in such a situation is tested by using either the Resale Price Method (comparison of gross margin) or TNMM (comparison of net margin) depending on the detailed functionality of the Indian distributor.

The BEPS Action Plans could have the following implications for such distributors:

a. Limited Risk Distributor: The aspect that needs to be examined is who actually manages the risks and exercises control over the functions of the distributor and in case the parent MNE does not do that, a low guaranteed margin would not adequately compensate the distributor irrespective of the contractual arrangement.

b. For a full-fledged distributor who undertakes significant and non-routine functions especially on the marketing side fairly independently and takes ,strategic decisions on local advertising and marketing strategies, overall investments to be made, etc. the pricing policy will need to be re-evaluated. One would need to consider whether a higher share in the overall profits in the value chain corresponding to the intangibles managed and controlled by the Indian distributor is required. Also, the Indian distributor would be expected to have long term exclusive distribution rights in its territory and also be compensated for premature termination using arm's length principles.

3. Indian captive service providers/procurement agents/service providersFor Indian captive service providers or Indian companies acting as procurement agents, the Indian tax authorities have always contested location savings, location specific advantages and intangibles in the form of vendor/customer lists as a means to allocate higher mark-up/profitability to the Indian company. The OECD Guidance on these aspects state that while these factors may have an effect on the arm's length price they are not unique intangibles and determining

Successismostoftenachievedbythosewhodon'tknowthatfailureisinevitable.

15

they should be addressed as comparability factors. It further states that to arrive at the arm's length price where reliable local market comparables are available, specific comparability adjustments for these factors is not required.

India's position on these aspects is ambiguous. The Indian tax administration believes that, apart from location savings, profit from location specific factors such as skilled manpower, access to market, a large customer base, supplier information and a distribution network should result in higher remuneration to the Indian company and that the price arrived at using local comparables does not adequately address this issue. While the Indian jurisprudence is leaning towards the OECD view, we will have to wait and see if there is any formal stand taken or guidance given by the Indian tax authorities.

4.Intra-group services/payment of management feesIn this case the approach of the Indian tax authorities is divergent from the OECD Guidance. The OECD has enumerated an elective and simplified approach for the low-value adding intra-group services and the simplified benefit test documentation for all service recipients. However, India has indicated that one of the major ways in which base erosion takes place is through excessive payments of management fee/service charges, royalties and interest. Thus, the Indian tax authorities consider transfer pricing of intra-group services as one of the high risk areas, which is also clearly evident from the widespread litigation in India over this issue.

Although the recently notified safe harbor rules provide for a markup of 5% for the payment of low value adding intra-group services, the Indian tax authorities in numerous cases have demanded quantification of benefit from each service received by the taxpayer and have challenged the payment on factors such as failure to demonstrate actual receipt of services, no benefits derived from the services, lack of documentation, etc.

5.Valuation of IntangiblesIn the case of a technological start-up entity in India that is in the process of developing an intangible, the company wishes to transfer the intangible that is still under development to its subsidiary company in say Singapore. Valuation is a challenging exercise in such cases since it is difficult to project the success of such an intangible. The Indian tax authorities' current approach is to scrutinise the projections used for arriving at the valuation and replace it with the actual number with the benefit of hindsight. The OECD Guidance on hard to value intangibles and the use of ex-post outcomes vis-à-vis ex ante projections to determine arm's length price would give them the much needed endorsement to look at such intangible valuations.

Currently, the judicial authorities frown upon this approach but whether the judicial thinking and approach would change is yet to be seen.

6.Complex business arrangements In the increasingly complex global business models, one sided benchmarking approaches (TNMM) may not be suitable in all the situations. Transfer pricing models based on profit share/ profit split based on value chain analysis may be

Successisnothowhighyouhaveclimbed,buthowyoumakeapositivedifferencetotheworld.

16

advocated more by the Indian as well as global tax authorities going forward.

Also, in lines with the prevalent thin capitalization regulations across the globe, India has introduced section 94B in the finance Act, 2017 in order to put a cap on interest deductions based on the parameters of interest expense as a percentage of EBITDA.

Considering the aforesaid developments, it is worthwhile to note the efforts of the Indian government to walk shoulder to shoulder with developed economies in incorporation of the global practices, including the most talked about OECD recommendations under the BEPS project.

Conclusion and Kay Take Away Points:The transfer pricing regulations across the globe are getting aligned with each other to make sure that operational profits of multinational groups are allocated to the economic activities which actually generate them.

Considering the wide acceptance to the OECD's guidance, MNE groups must work on the immediate objective of revalidating and realigning the transfer pricing policies within the group so that the transfer pricing positions go hand in hand with the value creation within the group.

Moreover, requirements under Country-by-Country Report will make it mandatory for MNEs to disclose, on a global basis, financial information including revenues and taxes paid, and non-financial information, including number of employees in each country.

With respect to tax administration, a possibility of increased scrutiny by the tax authorities may be inevitable as the high-level/big picture economic information of companies will be at their disposal. At a more practical level, MNEs would be increasingly required to explain their group level business realities and demonstrate the economic value-creation activities across the group as the focus of the tax authorities would be more on substance and the actual conduct of the parties in a related party transaction.

Going forward the key would be to build the TP policies from top down approach rather than a combination of country specific approaches and all the resultant profits going to the headquarters. On a ground level, multinational groups need to re-align the existing transfer pricing policies with value creation based on substance, if it's not already done, and have answers to the following:

Is the nature of group business clearly defined? How much of international and domestic transfer pricing is involved in the

company's business? Does the company/organisation have transfer pricing documentation that

demonstrates its positions? What is the company's global supply chain policy? Does that policy have substance for each function performed and risk

Successdoesnotconsistinnevermakingmistakesbutinnevermakingthesameoneasecondtime.

17

assumed in each local taxing jurisdiction? Is the transfer pricing documentation in-line with economic reality of the

current supply chain in each jurisdiction and the supply chain as a whole? Does the company/organisation have robust systems to align group-level as

well as country-specific economic details and generate convincing audit trail documents?

Whether the existing business models need to be altered in view of the CbC reporting requirements?

At the same time, it would be worthwhile to devise a strategic plan to be consistent in the responses so that if exchange of information is invoked between governments, the responses to one jurisdiction are not contradicted or incriminating in another jurisdiction.

In a nutshell, transfer pricing cannot remain a merely principle driven tax compliance activity anymore. It will touch upon the entire domain of the business, starting from the strategy to ground level operations. As a result, the entire business and operational processes may need an overhaul in light of the new international tax and transfer pricing landscape.

Motivationiswhatgetsyoustarted.Habitiswhatkeepsyougoing.

18

CORNERGST

‘Please send your queries relating to GST at editor@puneicai.org. Based on the queries

received FAQ's shall be identified and printed

20 THINGS YOU MUST KNOW ABOUT E - WAY BILLS IN GST

Contributed By:- CA Ravi kumar Somani

E-mail- ravikumar@hiregange.com

“GOVERNMENTHASPRESCRIBEDRULESINRESPECTOFE-WAYBILLSBUTTHEEFFECTIVEDATEOFITSAPPLICABILITYISYETTOBENOTIFIED(ASONTHEDATEOFTHISARTICLE)"

1) Who shall furnish details: Every registered person who causes movement of goods shallfurnish information relating to the said goods in Part A of FORM GST EWB-01,electronically, on the common portal, before commencement of such movement.

2) When to submit: If the consignment value of such goods exceeds Rs.50,000/-. Option is given to generate and carry e-way bill even if the consignment value is less than Rs.50,000/-

3) When to submit: If movement is in relation to a supply or for reasons other than supply or due to inward supply from an unregistered person. For example, if movement is for:

Supply; Export or Import; Job Work; Removal in SKD or CKD form; Line Sales; Sales Return; Exhibition or fairs ; For own use (stock transfers etc.)

4) Supply by unregistered person: In case of supply by an unregistered person to a registered recipient, then the movement shall be said to be caused by registered recipient if such recipient is known at the time of commencement of the movement of goods.

5) When not required: Generation of e-way bill is not required in the following cases:

a) In case where the goods are transported for a distance of less than 10 Kms

Tobesuccessfulyoumustacceptallchallengesthatcomeyourway.Youcan'tjustaccepttheonesyoulike.

19

intrastatefrom the place of business of the consignor.

b) Where the goods being transported are specified in annexure to the Notification no 27/2017. (mainly it covers category of goods that are exempted/ nil rated)

c) Where the goods are being transported by a non-motorised conveyance;

d) Where the goods are being transported from the port, airport, air cargo complex and land customs station to an inland container depot or a container freight station for clearance by Customs; or

e) In respect of movement of goods within such areas as are notified under rule 138(14)(d) of the Goods and Services Tax Rules of the concerned State.

7) When details of conveyance not required: Details of conveyance in Part B is not required to be provided if goods are transported for a distance of less than ten kms within the State or Union territory from the place of business of the consignor to the place of business of the transporter for further transportation.

8) EBN Number: Upon generation of e-way bill on the common portal, a unique e-way bill number (EBN) shall be made available to the supplier, the recipient and the transporter on the common portal.

9) Acceptance or rejection of e-way bill: The details of e-way bill generated shall be made available to the recipient, if registered who shall communicate his acceptance or rejection of the consignment. Where no communication is made within 72 hours, then it shall be deemed that he has accepted the said details.

6) Who should enter details in Part B and Generate the E-way bill:

If goods are transported by the registered person himself as a consignor or as a consignee through own conveyance or a hired one or by railways or by air or by vessel

The consigner/ consignee as the casemay be

If goods are handed over to a transporter for transportation by road

The registered person shall only furnish the information relating to the transporter in Part B and the e-way bill shall be generated by the transporter.

When movement is caused by an unreg isteredperson either in his own conveyance or a hired one or through a transporter.

The unregistered person or the transporter may, at their option, generate the e-way bill.

Manyoflife'sfailuresarepeoplewhodidnotrealizehowclosetheyweretosuccesswhentheygaveup.

20

10) Transferring goods in transit: If a transporter is transferring goods from one conveyance to another in the course of transit then he shall update the details of conveyance in the eway bill before such transfer and further movement of goods.

11) Multiple consignments: If multiple consignments are intended to be transported in one conveyance, then the transporter may indicate the serial number of e-way bills of each consignment and a consolidated e-way bill may be generated by him prior to the movement of goods.

12) If goods not transported as per e-way bill generated: Where an e-way bill has been generated, but goods are either not transported or are not transported as per the details furnished in the e-way bill, then the e-way bill may be cancelled within 24 hours of generation of the e-way bill.

13) Validity of e-way bill: Any e-way bill which is generated shall be valid in every State and Union territory. However, the periodicity of validity shall be as under:

i. Upto 100 Km - 1 dayii. For every 100 km or part thereof thereafter - One additional day The

period of validity shall be counted from the time at which the e-way bill has been generated and each day shall be counted as twenty four hours.

14) Exceptional circumstances: If goods cannot be transported within the validity period of the e-way bill due to circumstances of an exceptional nature, then the transporter may generate another e-way bill after updating the details in Part B.

15) Documents to be carried: The person in charge of a conveyance shall carry the following:

a. the invoice or bill of supply or delivery challan, as the case may be; andb. a copy of the e-way bill or the e-way bill number, either physically or

mapped to a Radio Frequency Identification Device embedded on to the conveyance in such manner as may be notified by the Commissioner.

16) Mandatory device in the conveyance: Commissioner may, by notification, require a class of transporters to obtain a unique Radio Frequency Identification Device and get the said device embedded on to the conveyance for mapping the e-way bill to the said device.

17) Interception of any conveyance: The Commissioner or an officer empowered by him in this behalf may authorise the proper officer to intercept any conveyance to verify the e-way bill or the e-way bill number in physical form for all inter-State and intrastate movement of goods.

18) Report of inspection: A summary report of every inspection of goods in transit shall be recorded online by the proper officer within 24 hours of

Everythingwillbeokayintheend.Ifit'snotokay,thenit'snottheend.

21

inspection and the final report shall be recorded within 3 days of such inspection.

19) Physical verification of goods: No further physical verification of the said conveyance shall be carried out again in the state, if the physical verification of goods being transported has been done during transit at one place within the State or in any other State, unless specific information relating to evasion of tax is made available subsequently.

20) Vehicle intercepted for more than 30 minutes: If a vehicle has been intercepted and detained for a period exceeding thirty minutes, then transporter may upload the said information in FORM GST EWB-04 on the common portal.

Agooddirectorcreatesanenvironment,whichgivestheactortheencouragementto�ly.

22

Dear Members,

We shall be requiring your continued support to make the

newsletter interesting as well as to come out with an issue each

month on different themes. Please share your articles on the

following themes by email on editor@puneicai.org

1. Indian Accounting Standards, Ind-As and IFRS

2. Practice Management and Senior Citizens

3. International Taxation (restricted to discussion on Individual

taxation issues - NRI etc.)

4. RERA (this issue can be done when implementation of RERA

completes an year)

5. Co-operative sector

6. Banking

7. Forensic Audits/ Fraud Prevention Measures8. GST corner - Articles/general info/questionnaire

Also please do help us in having contributions / articles from senior

people.

FULL DAY SEMINAR ON ICDS

CA Ameya Kunte - Speaker CA Pramod Jain - Speaker

FLAG HOISTING ON THE OCCASION OF INDEPENDENCE DAY

GST GYAN SATRA SERIES-II

CA Dinesh Gandhi-Speaker-Co-opera�ve Study Group mee�ng

CA Raveendra Pethe- Speaker Mr. Sunil Kumar- Speaker CA Pritam Mahure- Speaker

CA Manoj Malpani- Speaker CMA Ashok Nawal- Speaker

Takinganinterestinwhatothersarethinkinganddoingisoftenamuchmorepowerfulformofencouragementthanpraise.

23

ORIENTATION PROGRAMME FOR NEWLY QUALIFIED CHARTERED ACCOUNTANTS

WICASA ACTIVITIES

Article Development Workshop for CA students

CA Sharad Shah-Speaker-Seminar on“All About TAX AUDIT” for CA Students

CA Suchit Loya -Speaker CA Dhruva Doshi-Speaker

Shri. Pramod Chaudhari, Execu�ve Chairman, Praj Industries Ltd &President, Mahra�a Chamber of

Commerce, Industries & Agriculture,

Pune -Chief Guest

CA Dr. J. Sridhar-Speaker

CA Prafulla Chhajed, CCM, Chairman-CPABI-Speaker

CA S B Zaware, CCM, Chairman-ASB -Speaker

CA Sharad Vaze-Speaker CA Paul Alvares-Speaker CA Jayanta Kumar Ghanty-Speaker

CA Anil Kulkarni-Speaker

Encouragementofhighereducationforouryouthiscriticaltothesuccessofourcollectivefuture.

24

Plot No.8, Parshwanath

Nagar, CST No. 333,

Sr.No.573, Munjeri,

Opp. Kale hospital,

Near Mahavir Electronics,

Bibwewadi, Pune 411037

Tel: (020) 24212251 / 52

Web: www.puneicai.org

Email: admin@puneicai.org

Pune Branch of WIRC of ICAI

*Adissional GST - 18%

Eachgenerationissmarterthanthegenerationbefore,andtheyneedtotaldiversionandencouragementandthingstothinkabout.

25