Corporation Services in Company (1)

1

• PRESENTATION
• BY
• AGGARWAL RAMAN ASSOCIATES (ARA) CHARTERED
  ACCOUNTANTS

www.ramanaggarwal.com
Registered office SCO 35, Second Floor, Sector
-26, Chandigarh 160 019Tel- 91-172-2790366,
2790075, Fax-91-172-2790260, Mobile-09814011278 Em
ail raman_at_ramanaggarwal.com
2

• WELCOME

3
ABOUT ARA

• ARA is a firm of chartered accountants.
• ARA firm was formed in the 1988 (21 years).
• ARA firm provide Services in the area of Audit,
  Tax (Direct, indirect) and Advisory.
• ARA team is comprised of more than 25 multi
  displined professionals such as Chartered
  Accountants, Company Secretary, Lawyers, Cost
  Accountants and MBAs.
• ARA have state of the art facility in Chandigarh,
  New Delhi Pune.
• ARA have more then 100 Corporate Clients and
  leading MNCs (for USA, UK, Japan, Middle East,
  Europe).
• Mr. Raman Aggarwal, the CEO Founder empanelled
  with the Office of Official Liquidator attached
  with the High Court of Punjab, Haryana and
  Chandigarh. An Auditor for conducting Special
  Audits approved by the Tax Authorities.
• Nominated to the Regional Direct Taxes Advisory
  Council.
• Member of The Institute of Internal
  Auditors, Inc., Florida, USA, International
  Fiscal Association Netherlands and PHD Chambers
  of Commerce Industry, Confederation of Indian
  Industry.

4
SERVICES SOLUTIONS

• AUDIT AND ASSURANCE
• TAX REGULATORY SERVICES
• SPECIALITY SERVICES
• Setting up New Business
• Incorporation of a Limited Company
• Setting up of STPI Unit and Maintenance
• Setting up of SEZ UNIT and Maintenance
• Doing Business in India
• Doing Business Outside India
• Setting up Offshore Companies
• International Executive Services
• Business Registrations
• Intellectual Property
• Payroll Services
• Corporate Secretarial Services
• Virtual Office Services
• KPO-Accounts and Tax Outsource Services
• INTERNATINOL TAXATION
• FINANCIAL ADVISORY SERVICES

5
TEAM
S.NO NAME QUALIFICATION EXPERIENCE
1 Mr. Raman Aggarwal Fellow Chartered Accountant 25 Years in Accounts, Finance, Tax, Legal, Management etc.
2 Mrs. Simpy Gupta Bachelor in Law. Company Secretary 15 Years in Legal Corporate affairs
3 Mr. Sameer Sawrup Fellow Chartered Accountant 16 Years in Accounts, Finance, Tax, Legal, Management etc
4 Mr. Unni Krishnan Graduate 18 Years experience in Corporate Affairs
5 Ms. Arti Post Graduate 9 years experience in Regulatory Compliances
6 Mr. Sanjay Aggarwal Chartered Accountant 18 Years Accounts, Finance Tax
7 Mr. Suman Master in Commerce 14 Years in Accounts, Finance, Tax, Legal, Management etc
8 Mr. Lakhvinder Kamboj Bachelor in Law 2 Years Legal
9 Ms. Manmeet Kaur Masters in Law 2 Years Legal
10 Mr. Nikhil Vats Bachelor in Law 2 Years Legal
11 Mr. Gagandeep Vohra Bachelor in Law 2 Years Legal
12 Ms. Divya Bachelor in Law 2 Years Legal

• More than 15 other Professionally Qualified
  Support Staff

6
DOING BUSINESS IN INDIA
7
FOREIGN DIRECT INVESTMENT IN INDIA

• AUTOMATIC ROUTE
• APPROVAL ROUTE

8
ENTRY STRATEGY

• JOINT VENTURE
• WHOLLY OWNED SUBSIDIARY
• BRANCH OFFICE
• AGENCY

9
FORMS OF ENTERPRISES IN INDIA
INCORPORATED ENTITY

• Private Limited Company
• Public Limited Company

UNINCORPORATED ENTITIES

• Branch Office
• Liaison Office
• Project Office
• Partnership
• Trust

10
TYPE OF SECURITIES

• Equity Share
• Preference Share
• Debenture

11
LAWS GOVERNING BUSINESS IN INDIA

• The Companies Act. 1956
• Arbitration Reconciliation Act, 1996
• The Competition Act, 2002
• The Foreign Exchange Management Act, 1999
• Income Tax Act, 1961
• Central Sales Tax, 1956
• Central Excise Act, 1944
• Information Technology Act, 2000
• Copyright Act, 1957
• Geographical Indications of Goods Act, 1999
• Indian Patents Act, 1970
• Designs Act, 2000
• Industrial Disputes Act, 1947
• Workmen Compensation Act, 1956
• Employees Provident Fund Miscellaneous Provisions
  Act, 1952
• Consumer Protection Act, 1956

12
IMPORTANT REGULATORY AUTHORITIES FOR FOREIGN
INVESTMENT

• Secretariat for Industrial Assistance (SIA)
• Foreign Investment Promotion Board (FIPB)
• The Foreign Investment Implementation Authority
  (FIIA)
• Reserve Bank of India (RBI)
• Registrar of Companies (RoC)
• Securities and Exchange Board of India (SEBI)
• Central Board of Excise and Customs (CBEC)
• Central Board of Direct Taxes (CBDT)
• Authority for Advance Rulings (AAR)
• Investment Commission

13
DIRECT TAXES

• INCOME TAX
• DIVIDEND DISTRIBUTION TAX

14
INDIRECT TAX

• Customs duty
• CENVAT (excise duty)
• Central Sales tax
• Value added tax
• Service tax
• Octroi duty/entry tax
• Stamp Duty
• RD cess
• Works contract tax
• Turnover tax
• Purchase tax
• Secondary and higher education cess

15
INTERNATIONAL TAX TREATIES

• Treaties with favorable jurisdictions such as
  Mauritius, Cyprus, Singapore and the Netherlands
• India has entered double tax treaty with 79
  Countries

16
IMPORTANT HR STATUTES
TRAINING, RECRUITMENT AND SCREENING
Employment exchanges (Compulsory notification of vacancies) act, 1959
The payment of gratuity act, 1972
The apprentices act, 1961
Contract labour (regulation and abolition) act, 1970
Child labour (prohibition and regulation) act, 1986
PAY, SALARY AND BONUS
Minimum wages act, 1948
Payment of wages act, 1936
Equal remuneration act, 1976
Payment of bonus act, 1965
COND Next Slide
17
EMPLOYMET TERMS, CONDITIONS AND BENEFITS
Factories act, 1948
Shops and commercial establishments acts
Industrial employment (Standing orders) act, 1946
Maternity benefit act, 1961
SOCIAL SECURITY, INSURANCE AND COMPENSATION
Employees provident funds and miscellaneous act, 1952 (epf act)
Employees state insurance act, 1948 (esi act)
Workmens compensation act, 1923
Disputes and liabilities
Industrial disputes act, 1947
Employers liability act, 1938
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INTELLECTUAL PROPERTY

• Patents
• Copy Rights
• Trade Marks
• Trade Secretes
• Geographical indication of goods

19
ACCOUNTS AND AUDIT

• Indian Accounting Standards
• Audit and Assurance Standards
• Guidance notes
• Standards on internal audit
• Opinion of expert advisory of ICAI
• IFRS to be implemented in 2011

20
REPORTING REQUIREMENTS
21
INCOME TAX

• Annual Tax Return
• Quarterly withholding tax return
• Accountant report under of transfer pricing rule
• Tax audit report
• Accountant report in case of MAT
• Accountant report in case of STPI/EOU/SEZ

22
COMPANY LAW

• Filling of annual audited financial statements
• Filling of annual return
• Filling of documents in case of
• Change of Director
• Change of Capital
• Change of Registered Office
• Registration of Charge

23
EXCHANGE CONTROL LAW/RBI

• Intimation to RBI from receipt of capital
• Intimation to RBI from the date of allotment of
  shares
• Annual return to RBI

24
SERVICE TAX LAW

• Monthly deposit of tax
• Half yearly tax return
• Refund of Service Tax within 1 year

25
STPI

• Monthly progress report
• Annual return
• Filling of Softex form
• Reimbursement of CST on half yearly basis

26
VAT/CST

• Monthly/Quarterly return
• Annual return

27
EXTRACTION OF EARNINGS OUT OF INDIA

• Dividend
• Buyback
• Redemption

28
EXIT STRATEGY

• Dissolution of company
• Sale of share
• Merger/Amalgamation
• IPO

29

• INCOME TAX LAW AT A GLANCE
• IN
• INDIA

30
INCOME TAX AT A GLANCE

• CHARGEABILITY
• Income arising or accruing or receiving in India
  including specified deeming income
• TAX RULE
• Resident Rule
• Source Rule
• TAX PAYER TYPE
• Residents
• Non Residents
• Resident but not Ordinarily Resident
• COND Next Slide

31

• SCOPE
• Worldwide Income Taxable in case of Resident
• Indian Sourced Income Taxable in case of Non
  Resident
• Worldwide Income except Business Income Taxable
  in case of Resident but not Ordinarily Resident
• PERIOD
• 12 months period from 1st April to 31st March
  (Accounting Year)
• Law as exists in next year applicable (Assessment
  Year)
• CLASSIFICATION AND COMPUTATION OF INCOME
• Income is classified as below and then computed
  according to the procedure specified for each
  classification
• SALARY
• HOUSE PROP0ERTY
• BUSINESS/PROFESSION
• CAPITAL GAIN
• OTHER SOURCES (RESIDUARY)

32

• EXEMPTIONS AND DEDUCTIONS
• Various specified exemptions and deductions are
  allowed based on various incentive schemes
• MODE OF TAX PAYMENT
• Self Assessment (at the time of filing tax
  return)
• Advance Tax ( 3 to 4 installments on
  estimated basis)
• TDS (deposited by buyer on
  behalf)
• WITHHOLDING TAXES
• Certain specified transactions are subject to
  withholding taxes
• FILING REQUIREMENTS
• 31st July (In case of Individual)
• 30th Sept. (In case of corporation or non
  corporation if turnover exceeds 4 million)
• Revised return within 1 year from end of A/Y
• COND Next Slide

33

• ASSESSMENT PROCEDURE
• Accepted as such (If not selected for audit
  within six months from the end of A/Y )
• Selected for Scrutiny (Audit)
• TIME PERIOD FOR ASSESSMENT
• 1 year from the end of A/Y if not selected for
  Audit
• 2 years from the end of A/Y if selected for Audit
  
• REASSESSMENT PROCEDURE
• If income escaped taxation or wrong information
  by tax payer within 4/6 years from the end of
  A/Y
• TIME PERIOD FOR REASSESSMENT
• 9 months from the end of the F/Y in which notice
  is served
• RECTIFICATION OF ORDER
• Within 4 years from the end of the F/Y in which
  order is passed or 6 months from the end of the
  month in which rectification application is
  received
• COND Next Slide

34

• REVISION OF ORDER BY COMMISSIONER
• Within 2 years from the end of the F/Y in which
  order was passed
• REVISION OF ORDER BY COMMISSIONER IF TAX PAYER
  REQUESTED
• Within 1 year from the end of the F/Y in which
  order was passed
• REFUND
• Tax payer is entitled to refund of excess tax
  deposited with interest _at_ 6 per annum
• INTEREST
• Interest _at_ 12 per annum for delay in filing
  return, deposit of tax etc.
• COND Next Slide

35

• PENALTIES
• Maximum 300 of tax amount
• PROSECUTION
• Willful attempt to evade tax
• Willful failure to file tax return
• Willful failure to file documents and accounts
• Falsification of books of accounts and documents
• False statements
• False returns
• Willful non compliance
• PUNISHMENT
• Imprisonment ranges from 6 months to 7 years with
  fine or without fine subject to trial in the
  court

36
WEALTH TAX

• IF TAXABLE WEALTH EXCEEDS RS. 3 MILLION
• WEALTH TAX _at_ 1.03

37
INCOME TAX TABLE
Domestic Company 33.99
Foreign Company 42.23
Dividend distribution tax 16.995
Capital gains tax on exit or restructuring 0 to 42.23 (long/short term)
Withholding Taxes Nagging problems
Minimum Alternate Tax Domestic companies raised from 11.33 to 16.995 Foreign companies raised from 10.558 to 15.836
38
NEW DIRECT TAX CODE

• TAXATION OF COMPANIES
• Companies 25
• Branch profit tax 15
• GAAR Introduce
• Treaty Override Introduced
• Short Term/Long Term Capital gains _at_ 30
• Residence rule for companies Place of control
  and management, wholly or partly in India, at any
  time in the year
• Wealth tax _at_ 0.25 (basic exemption USD 10
  Millions)

39
TAX RATE COMPARISION
Corporate Income Tax Rate 30 25
Minimum Alternative Tax 15 (of book profits) 2 of gross assets
Capital Gains 0 - 40 30
Branch Profit Tax 0 15
Withholding Taxes (payments to non-residents)
Dividends 0(DDT of 15 is applicable) 0 (DDT of 15 is applicable)
Interest 10 - 40 20
Royalty 10 20 (on gross basis)
Service and Management 10 20 (on gross basis)
40

• INTERNATIONAL TAXATION
• AT A
• GLANCE

41
INTERNATIONAL TAX AT A GLANCE

• All payments in the nature of chargeable income
  subject to
• Withholding Tax.
• Withholding Tax rate as stated in either Treaty
  or Domestic Tax Law which is more beneficial to
  tax payer.
• Provisions to lower Withholding Tax rate in
  Indian Tax Law.
• Indian Party making payment of income to Non
  Resident or Business Connection or Employer
  treated as Representative Assesses (Agent).
• Income from Permanent Establishment is always
  on Tax Authoritys Radar.
• Underlying Tax Credit available to US
  Corporations not Individuals.

42
DOUBLE TAXATION TREATY BETWEEN INDIA USA

• RATE
• DIVIDEND NIL
• INTEREST 10-15
• ROYALTY 10 in case of use of Industrial,
  Commercial and Scientific Equipment
• 15 if payer is Government or Specified
  Organization
• 20 in other Cases
• FEE FOR INCLUDED 10 in case of use of Technical
  or Consulting SERVICES Services, Ancillary
  Subsidiary to Industrial, Commercial and
  Scientific Equipment
• 15 if payer is Government or Specified
  Organization
• 20 in other Cases

43
TRANSFER PRICING LAW IN INDIA
44
INTRODUCTION TO TRANSFER PRICING

• In India, Transfer Pricing regulations were
  introduced from April 1,2001
• as a measure to curb tax avoidance.
• Any Income arising from an international
  transaction to be computed
• at the arms length price (ALP).
• The Central Board of Direct Taxes has set up a
  separate cell for dealing
• with cases of transfer pricing
• SOURCE
• OECD guidelines
• US regulations and jurisprudence
• Indian jurisprudence

45
ARMS LENGTH PRINCIPLE

• Where an enterprise enters into transactions
  with associated
• enterprises, in order to determine fair profit
  of that
• enterprise, the price of the transactions should
  be compared
• with those entered into by two independent
  enterprise under
• uncontrolled conditions and under similar
  circumstances.

46
APPLICABILITY

• INTERNATIONAL TRANSACTIONS
• ASSOCIATED ENTERPRISES

47
INTERNATIONAL TRANSACTIONS

• Purchase
• Sale
• Lease of tangible or intangible property
• Provision of services
• Lending or borrowing money or
• Any other transaction having a bearing on the
  profits, income, losses or Assets of such
  enterprise.

48
ASSOCIATED ENTERPRISES

• PRIMARY ASSOCIATION
• Management/Control/Capital
• SECONDARY ASSOCIATION
• Direct or indirect voting power of at least 26
• Common parent holds voting power of at least 26
  in both
• Loan of 51 or more of value of assets
• Guarantee of 10 or more of total borrowings
• One appoints more than half of directions on
  board or one executive director of other
• Common parent appoints more than half of
  directors on board or executive director in both
• Whole dependence on use of IPRs of the other
• Buying of bulk raw materials, Sales to one party
  etc.

49
STEPS FOR DETERMINATION OF ALP

• STEPS INVOLVED IN THE DETERMINATION OF THE ALP
• Identification of the International
  Transaction
• Identification of an Uncontrolled Transaction
• Identification and comparison of specific
  characteristics of the two transactions
  (Comparability) as per Rule 10A and 10B. Finding
  out whether differences, if any, between the two
  transactions can be reconciled/resolved
• Ascertaining the most appropriate method
• Determination of the arms length price by
  applying the method chosen.

50
METHODS

• The specific methods prescribed for computing
  arms
• length price, which are as follows
• TRADITIONAL TRANSACTION METHOD
• TRANSACTIONAL PROFIT METHOD

51
TRADITIONAL TRANSACTION METHOD

• COMPARABLE UNCONTROLLED PRICE METHOD
• Under this method, the first step is to identify
  the price charged or paid for property
  transferred or services provided in a comparable
  uncontrolled transaction. Then such price is to
  be adjusted on account of differences, which
  could materially affect the price in the open
  market, if any, between the transactions being
  compared or between the enterprises entering into
  such transaction. Such adjusted price can be
  called as arms length price computed under this
  method. This method involves comparison of prices
  both internal and external.
• RESALE PRICE METHOD
• Under this method, the first step is to identify
  the price at which property purchased or services
  obtained by the enterprise from an Associated
  enterprise is resold or are provided to an
  unrelated enterprise. From such resale price, the
  amount of a normal gross profit margin accruing
  to the enterprise or to an unrelated enterprise
  from same or similar transaction is to be
  reduced. The price so arrived is further reduced
  by the expenses incurred by the
• COND Next Slide

52

• enterprise in connection with the said
  transaction. Then such price is to be adjusted to
  take into account the functional and other
  differences, including differences in accounting
  practices, which could materially affect the
  amount of gross profit margin in the open market,
  between the transactions being compared or
  between the enterprises entering into such
  transactions. Such adjusted price can be called
  as arms length price computed under this method.
• COST PLUS METHOD
• Under this method, the first step is to
  determine the direct and indirect cost of
  production incurred by the enterprise in respect
  of property transferred or services provided to
  an associated enterprise. The next step is to
  determine the normal gross profit mark-up to such
  costs computed according to the same accounting
  norms of the enterprise or unrelated enterprise
  in connection with the same or similar comparable
  uncontrolled transaction. The said normal gross
  profit mark-up is to be adjusted on account of
  functional and other differences if any, which
  could materially affect such profit mark-up in
  the open market, between the transactions being
  compared or between the enterprises entering into
  such transaction. Such profit mark-up is to be
  added in the cost calculated as per the first
  step. The sum so arrived at, can be called as
  arms length price computed under this method.

53
TRANSACTIONAL PROFIT METHOD

• PROFIT SPLIT METHOD
• Under this method, the first step is to
  determine the combined net profit of the
  Associated enterprise arising from the
  international transaction in which the
  enterprises are engaged. After that the relative
  contribution made by each of the associated
  enterprise the combined net profit is evaluated
  on the basis of the functions performed, assets
  employed or to be employed, reliable external
  data and risks assumed by each enterprise. The
  combined net profit is then split amongst the
  enterprises in proportion of their relative
  contributions and such apportioned profit shall
  be taken into account to arrive at the arms
  length price in relation to the international
  transaction.
• TRANSACTIONAL NET MARGIN METHOD
• Under this method, first the net profit margin
  realized by the enterprise from an international
  transaction entered into with an Associated
  enterprise is computed in relation to costs
  incurred or sales effected or assets employed or
  to be employed or any other relevant base. Then
  the net profit margin realized
• COND Next Slide

54

• by the enterprise or by an unrelated enterprise
  from a comparable uncontrolled transaction is
  computed with regard to the same base. Such net
  profit margin arising in comparable uncontrolled
  transactions is to be adjusted on account of
  differences if any, which could materially affect
  the net profit margin in the open market, between
  the transactions being compared or between the
  enterprises entering into such transaction.

55
SUMMARY OF METHODS
Methods Product Comparability Functional comparability Approach Remarks
CUP Very High Medium Prices are benchmarked Very difficult to apply as very high degree of comparability required
RPM High Medium GPM (on sales) benchmarked Difficult to apply as high degree of comparability required
CPLM High High GPM (on costs) benchmarked Difficult to apply as high degree of comparability required
PSM Medium Very High Profit Margins Complex Method, sparingly used
TNMM Medium Very High Net Profit Most commonly used Method
56
SELECTION OF MOST APPROPRIATE METHOD

• THE MOST APPROPRIATE METHOD SHALL BE SELECTED
  HAVING REGARD
• TO THE FOLLOWING
• The nature and class of the international
  transaction
• The class or classes of associated enterprise
  entering into the transaction and the functions
  performed by them taking into account assets
  employed or to be employed and risks assumed by
  such enterprises
• The availability, coverage and reliability of
  data necessary for application of the method
• The degree of comparability existing between the
  international transaction and the uncontrolled
  transaction and between the enterprises entering
  into such transactions
• The extent to which reliable and accurate
  adjustments can be made to account for
  differences, if any, between the transactions
  being compared and the enterprises entering into
  such transactions
• The nature, extent and reliability of assumptions
  required to be made in application of a method
  It is provided that where more than one price is
  determined.

57
COMPARABILITY FACTORS

• FOR COMPARING AN INTERNATIONAL TRANSACTION WITH
  AN
• UNCONTROLLED TRANSACTION, REFERENCE SHOULD BE
  MADE TO
• THE FOLLOWING
• The specific characteristics of the property
  transferred or services provided in either
  transaction
• The functions performed, taking into account
  assets employed or to be employed and the risks
  assumed, by the respective parties to the
  transactions
• The contractual terms (whether or not such terms
  are formal or in writing) of the transactions
  which lay down, explicitly or implicitly the
  responsibilities, risks and benefits to be
  divided between the respective parties to the
  transactions
• Conditions prevailing in the markets in which the
  respective parties to the transactions operate,
  including the geographical
• location and size of the markets, the laws
  and government orders in force costs of labor and
  capital in the markets, overall economic
  development and level of competition and whether
  the markets are wholesale or retail.

58
TRANSFER-PRICING AUDIT

• Limit of Rs. 5 Crores has been enhanced to Rs. 15
  Crores with effect from Financial Year 2005-06.
• Use of data in the year the transaction takes
  place however at the time of preparation of
  documentation the assesses had access to data
  only of prior years. TPOs are seeking to rerun
  comparable search with current data.

59
ASSESMENT PROCEDURE
File tax return Accountants Report (30th September)
i
Reference to be made to TP Officer (TPO) by the Assessing Officer (AO) Compulsory Reference to be made by AO if international transaction exceed Rs 150 million
i
Notice to be issued by the TPO for calling supporting documents and evidences
i
TP Audit
i
Preparation of Draft order
i
Passing of order within 1 month from the end of the month if No Objection on the draft order by the Tax payer within 30 days or time expires for filing the objections within 30 days
i
If tax payers has objection he will file objections to Dispute Resolution Panel within 30 days from the date of draft order
i
Dispute Resolution after hearing TPO and Tax payer along with evidences will either give directions to the TPO or no directions, within 9 months from the end to the month in which the draft order is forwarded to the tax payer
i
Within 1 month from the end of the month in which direction is received, or expiry of 9 months whichever is earlier, the TPO will pass the final order in conformity with the directions of the Dispute Resolution Panel
i
Based on results of the above mentioned procedure Assessing Officer will pass the order
60
REPORTING REQUIREMENTS

• Every tax payer entering into international
  transaction to obtained an accountant report in
  prescribed form i.e. Form 3CEB.
• Every accountant report to be submitted on or
  before the due date for filing tax return
• Accountant report contain the following
  information
• Contains summary of international transaction
• Contains details of tax payer
• Contains method employed to determine ALP

61
DOCUMENTATION
ENTITY RELATED PRICE RELATED TRANSACTION RELATED
Profile of industry Profile of group Profile of Indian entity Profile of associated enterprises Transaction terms Functional analysis (functions, assets and risks) Economic analysis (method selecting, comparable benchmarking) Forecasts, budgets, Agreements Invoices Pricing related correspondence (letters, emails etc.)
62
PENALTY
DEFAULT NATURE OF PENALTY
In case of a post inquiry adjustment, there is deemed to be a concealment of income 100 300 of tax on the adjusted amount
Failure to maintain documents 2 of the value each international transaction
Failure to furnish documents 2 of the value each international transaction
Failure to furnish accountants report Rs. 100,00
63
KEY ISSUES/CONTROVERSY

• Use of secret comparables not prohibited
• Selection of time period
• Availability of corporate data
• Limited guidance on adjustment methodology
• Avoid loss making companies and negative net
  worth
• Circular interferes with the judicial discretion
  of TPO
• No safe harbor clause provisions
• No advance pricing agreement provision
• Use of current data rather than data available
  up-to the date of filing of Tax return
• No significant legal precedents on Transfer
  pricing matters as yet
• No use of earlier years data

64
RECENT EXPERIENCES/TAKE-AWAY

• Adjustment allowed
• Working capital
• Risks
• Growth
• IP
• Under utilization of capacity
• Difference in accounting policies
• Loss making comparables accepted except
  continuous loss making companies
• Independent comparable having related party
  transactions (more than 15) not accepted
• OECD and US Guidelines on Transfer Pricing
  accepted
• Emphasis on FAR analysis than other economic
  factors
• COND Next Slide..

65

• Segmental results to be considered
• Transfer Pricing not an exact science and hence
  reasonable presumption and approximation accepted
  
• Multiple year data generally not accepted
• Transfer Pricing law in India at very infancy
  stage
• Start-up company and low net worth companies not
  accepted
• In TNMM, comparability at broader level in terms
  of product accepted

66
DOMESTIC LAW DISPUTE RESOLUTION PROCESS
Transfer Pricing Officer
Dispute Resolution
Panel
Appellate Tribunal
High Court
Supreme Court
Order passed within 1 month from end of the month
in which direction from Dispute Resolution
Panel is received or end of 9 month from the end
of month in which draft order is forwarded.

• Final fact finding authority
• No specific time limit
• Generally order passed within 2 4 years from
  filing of appeal
• Revenue can also go on appeal if Commissioner
  decides in favor of taxpayer

• Final fact finding authority
• No specific time limit
• Generally order passed within 2 4 years from
  filing of appeal
• Revenue can also go on appeal if Commissioner
  decides in favor of taxpayer

Direction to be issued within 9 month from the
end of the month in which objection are forwarded
67
INTERNATIONAL DISPUTE RESOLUTION PROCESS (MUTUAL
AGREEMENT PROCEDURE PROCESS)
Overseas Taxpayer
Overseas Competent Authority
Indian competent Authority
India Tax administration

• Overseas Taxpayer can invoke CA proceedings in
  case there is double taxation or taxation not in
  accordance with the tax treaty
• Technically, application is possible even before
  assessment is made.

• If overseas CA consider the application
  appropriated, application forwarded to the Indian
  CA
• CAOVERSEAS CA could request Taxpayer for
  additional information

• Indian CA ON RECEIE OF map REQUEST FROM OVERESAS
  CA could consider the same for discussion
• Additional information could be requested before
  the cases in expected

• In case the matter is resolved between the CAs
  and accepted by the Taxpayer, the same is
  communicated to the Tax Officer

• Overseas and India CAs would initiate negotiate
  negotiation and attempt to reach an amicable
  resolution
• CAs may set up certain procedures/guidelines
  which they will adhere to during the negotiation
  process
• In case the CAs reaches a resolution, the
  proposed agreement should be communicated to the
  Taxpayer for his acceptance.
• Taxpayer has option not to accept the agreement
  in case it is detrimental taxpayer may seek
  correlative relief in the overseas jurisdiction

68
EVALUATION OF ALTERNATIVE DISPUTE RESOLUTIO
OPTIONS
Criteria Map Appeal
Time frame Generally 1-2 years Can range from 2 to 20 years, depending upon level
Approach More scope for negotiation /compromise, CAs could agree on a middle path Legalistic approach, no negotiations
Taxpayer involvement At the discretion of CA Significant involvement
Binding nature Binding on CA, Taxpayer need mot accept if detrimental can continue with domestic tax law appeal Binding, but sequential appeals ca be made to higher judicial authorities.
Double tax mitigation Possibility of avoiding double tax impact through correlative relief Double tax exposure if appeal is against taxpayer, correlative relief to be separately pursued.
Collection of taxes MOU for suspending collection of taxed (with US) STAY FO DEMAND AT THE DISCRETIO OF THE Tax officer and Appellate Authorities
Finally Greater change of reaching finality, decision of CA binding on Tax officer Tax officer can prefer appeal if first-level appeal is in Taxpayers favor
Experience Inadequate experience in TP, but better general appreciation of international tax issues n/Limit TP experience at this stage
Coverage Possibility of covering even subsequent years on the basis of anticipated adverse results Would need t await assessment order for ach year before filing appeal.
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WHAT WE DO FOR QUARK SOFTWARE

• WE OFFER THE FOLLOWING
• REPRESENTATION SERVICES
• Income Tax
• International Tax
• Transfer Pricing
• Appeal
• REPRESENTATION SERVICES
• Service Tax
• Foreign Investment Promotion Board
• Department of Company Affairs
• Exchange Control Department
• STPI
• COND Next Slide.

70

• REVIEW SERVICES
• AUDIT ASSURANCE SERVICES
• Management audit
• Special audit
• CERTIFICATION
• COMPLIANCE PLANNING SERVICES
• OPINIONS
• CONSULTATIONS ADVISORY SERVICES
• SIGNATORY SERVICES

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PERFORMANCE DURING LAST ONE YEAR

• TAX SAVINGS (ACTUAL) USD 1.04 Millions
• Year 2003-04 (185 K)
• Year 2005-06 (858 K)
• (base on last year KPMG order)
• TAX SAVINGS (VERY LIKELY) USD 596 K
• Year 2003-04 (65 K)
• TDS Survey (531 K)
• NUMBER OF TAX CASES GOT THROW
• General Assessment 6
• Transfer Pricing 3
• FBT 6
• Appeals 4
• COND Next Slide.

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• Review of various returns filled periodically
• Certification Services
• Signatory services
• Various opinions on Service Tax, Income Tax,
  Company Law etc.
• Compliances
• Corporate Secretarial services

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• TAX CALENDER

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SL NO. NAME OF COMPANY TYPE AUTHORITY STATUS AS ON 03.12.2009
A QUARK SYSTEMS PVT. LTD QUARK SYSTEMS PVT. LTD QUARK SYSTEMS PVT. LTD QUARK SYSTEMS PVT. LTD
1 F/Y 2003-04 Appeal Second Appellate Authority (ITAT) Case referred back to the Transfer Pricing Officer
2 F/Y 2004-05 Appeal First Appellate Authority (CIT-A) Case adjourned to 16.12.2009
3 F/Y 2005-06 Scrutiny/Audit Tax Officer Hearing is under progress
4 F/Y 2006-07 Scrutiny/Audit Tax Officer Next date is yet to be fixed
5 F/Y 2006-07 Scrutiny/Audit Transfer Pricing Officer 21.12.2009
6 F/Y 2007-08 Scrutiny/Audit Tax Officer Next date is yet to be fixed
7 F/Y 2007-08 Scrutiny/Audit Transfer Pricing Officer Date not fixed
B QUARK MEDIA HOUSE INDIA PVT. LTD QUARK MEDIA HOUSE INDIA PVT. LTD QUARK MEDIA HOUSE INDIA PVT. LTD QUARK MEDIA HOUSE INDIA PVT. LTD
1 F/Y 2004-05 Appeal First Appellate Authority (CIT-A) Case adjourned to 16.12.2009
2 F/Y 2005-06 Scrutiny/Audit Tax Officer Hearing is under progress
3 F/Y 2006-07 Scrutiny/Audit Tax Officer Next date is yet to be fixed
4 F/Y 2006-07 Scrutiny/Audit Transfer Pricing Officer 21.12.2009
5 F/Y 2007-08 Scrutiny/Audit Tax Officer Next date is yet to be fixed
6 F/Y 2007-08 Scrutiny/Audit Transfer Pricing Officer Date not fixed
C QUARK COMMERCE INDIA PVT. LTD QUARK COMMERCE INDIA PVT. LTD QUARK COMMERCE INDIA PVT. LTD QUARK COMMERCE INDIA PVT. LTD
1 F/Y 2004-05 Appeal First Appellate Authority (CIT-A) Case adjourned to 17.12.2009
2 F/Y 2005-06 Scrutiny/Audit Tax Officer Hearing is under progress
3 F/Y 2007-08 Scrutiny/Audit Tax Officer Next date is yet to be fixed
4 F/Y 2007-08 Scrutiny/Audit Transfer Pricing Officer Date not fixed
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THANK YOU
www.ramanaggarwal.com
Registered office SCO 35, Second Floor, Sector
-26, Chandigarh 160 019Tel- 91-172-2790366,
2790075, Fax-91-172-2790260, Mobile-09814011278 Em
ail raman_at_ramanaggarwal.com