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India Inc. Voices Tax Concerns

Published on Tue, Dec 13,2011 | 13:22, Updated at Tue, Dec 13 at 15:06Source : Moneycontrol.com |   Watch Video :

Increased transfer pricing adjustments, tax on import of software, the form over substance debate, MAT on SEZs- the year 2011 has been marred by an uncertain tax environment. So, no wonder, only 1% of corporate India believes that India’s tax policies are conducive to growth- that is a finding from the KPMG Tax survey, 2011 that voices India Inc’s pain points on the tax policy front. Payaswini Upadhyay reports on the key findings.

(Video Courtesy: International Tax Conference, 2011)
RN Dash
Director General of International Taxation, India

"I have been moving place to place last year during the transfer pricing audit, met all our directors and transfer pricing officers and told them not to make any adjustments for adjustments sake, it must be backed by appropriate data and support. And there was no quota or budgeting from the tax admin with regard to this." 

But Corporate India feels otherwise…at least a majority of them. Responding to KPMG’s tax survey that covered over 130 companies, 54% of respondents saw transfer pricing as an area of uncertainty- the main issues voiced against were the cross charge of costs, use of unrealistic profit margins and choice of unrealistic comparables by the transfer pricing officers.

Ashwini Sachdev
Tax Director, Microsoft India

“There are very very subjective factors which are changing- like different transfer pricing officers based on their location can have different approach to Transfer Pricing on the same type of transaction and we have also seen situations where it is evident that the transfer pricing officers between themselves are taking selective approaches at transfer pricing on the same kind of transactions and we have situations where it is evident that the transfer pricing officers between themselves are taking selective approaches and are looking at transfer pricing as a math rather than an art, and are going by computations rather than appreciating the practical and functional aspect of a business which is what a transfer pricing analysis is all about.”

Besides Transfer Pricing, the KPMG survey findings reveal concerns on tax disputes raised by revenue on cross border transactions (74%) and uncertainty around India-Mauritius DTAA (60%). 80% of corporates expressed concerns on the sudden and unexpected changes proposed by the government.

Dinesh Kanabar
Deputy CEO & Chairman - Tax
KPMG
“When the survey says that predominantly many of the participants were unhappy about the uncertainties of law, eg: government came out with the SEZ regime where you get a tax holiday for a defined period of time and now the government has come out to say that sure you have a tax holiday but you have tax on your book profits i.e MAT, so in effect there was a 30% tax, you give a tax holiday and now you are imposing a 20% tax- so the question is can India be relied on to do what it says.”

With the annual budget just 3 months away and the expectation being that several provisions of the Direct Taxes Code may get incorporated in the Income Tax Act, more than 50% of corporates felt that this will add to the complexity in tax policies. Residency rules (80%), treaty override (71%), controlled foreign corporation rules (67%) and general anti-avoidance rules (52%) top the list of India Inc’s concerns.

(Video Courtesy: International Tax Conference, 2011)
RN Dash
Director General of International Taxation, India

“I must make it clear that anti avoidance rules are meant for those who are making schemes for avoiding tax without any commercial substance. So all compliant people or all those who are making their tax planning with commercial purpose, supporting it substantially, have nothing to fear.”

Ashwini Sachdev
Tax Director, Microsoft India
“Without any visibility to those guidelines, given the way the tax environment and the litigation has grown over the past couple of years, the industry is worried whether these powers will be misused and give rise to even more litigation moving forward.”

Among the other key findings of the survey is the expectation of an early implementation of GST (78%). Tax continues to be a significant factor in decision making (64%) and most corporates said they prefer Advance Rulings as a mechanism to achieve tax certainty (57%) over the DRP or dispute resolution mechanism. 79% of companies felt that the DRP had not met its objective. (KPMG Shots) KPMG says the survey should be seen as the dialogue with the government- corporate India has voiced its concerns, now they hope the government is listening.

 
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