Mamata L5 P2 Vodafone Nokia Maruti

8/12/2019 Mamata L5 P2 Vodafone Nokia Maruti

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1. Capital Gains Tax

2. Transfer Pricing Issue3. GAAR4. DTC Reforms


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Direct tax

On the profit from sale of capital assets Shares, Bonds, Gold, Real estate Rate depends on time frame

Capital Gains Tax


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Shares, Bonds and MF

1 yearShort term15%

Long term20%

Gold, Real estate = 3 years


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Kishor BiyaniFuture Group

Pantaloon

Kumar ManalgamBirla

1000 Crore

Pantaloon


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Pantaloon

Birla

1000 Crore

Pantaloon


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Pantaloon

Birla

900 Crore

CGT100

Crore TDSWithholding TAX


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What happened inHutch Deal?


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CGP investmentHolding, Cayman

HutchinsonHongKong

Hutch Essar, India

Vodafone PLC,London

Vodafone,Netherland

Vodafone India

Feb. 2007


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(67%)

HutchinsonHongKong

Hutch Essar, India

Vodafone PLC,London

Vodafone,Netherland

12k Crore

Vodafone Essar India

Mar. 200


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2012: Supreme Court

Rs.12000 CCGT


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SC IT Dept. no power / jurisdiction (existing). Govt. issues Clarification in IT act Capital gains on companies outside India. when value derived from Indian Asset Such companies will be considered located within

India. Will apply to all deals from 1962 onwards

IT Act Clarification (2012)


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Evasion

Income / transactionhidden

Black money

Reported, everythion file

Black money

Avoidance

Evasion OR Avoidance?


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General Anti Avoidance Rules WEF 1/4/2014 IT commissioner take action against taxavoidance

Indian Citizen, NRI, Foreigner Even outside India Even retrospective Even if protected under any DTAA

Budget 2012: GAAR


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Shome Panel Only in rare cases >3 Cr. + tax benefit Not to fill Revenue shortfalls Defer till 2016 (2013) Chidambaram => 1/4/2016

Budget 2012: GAAR


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Arguments:Pro-Government

Pro IT-dept


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Giant Bought from Indian Sanofi Aventis French Shantha bi

General Electric Luxemburg GenPact I

Aditya Birla,Tata

AT&T Idea (1

Vedanta Cyprus Sesa G

CGT issues like Vodafone

35,000-40,000 crore tax evasion


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Profit, Interest, Dividend


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Component + Credit(Incoming)

- Debit(Outgoing)

Net (20Mil.US

Income1. Profit2. Interest3. Dividend

+10,000 -30,000 -20,00(DEFI

BoP: Current Account: Invisibles =>Income


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Pro-Corporate Arguments


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SHARE-HOLDERS

Board of DirectorsManaging Director

CEOExecutives

Staff

IPO


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SHARE-HOLDERS


CEOExecutives

Staff

Income Tax (10|20|30%)

IT

PROFIT

DIVIDEND

VA

Excise Duty 6%

Corporate Tax 33%

C O


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SHARE-HOLDERS


CEOExecutives

Staff

Income Tax (10|20|30%)

IT

PROFIT

DIVIDEND

VA

Excise Duty 6%

Corporate Tax 33%

Vodafone:


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Crore Rupees 2013

Revenue 35000 16% 5600

Profit 1850 33% 610.5

total +6210.

Vodafone:

CGT LOST 12,000 Cr.


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VodafonePiramal and Essar


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Piramal and Ruia?


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(67%)

HutchinsonHongKong

Hutch Essar, India

Vodafone PLC,London

Vodafone,Netherland


2011

Piramal5%

Essar Ruia22%

FDI in Telecom: 74%

Piramal 5%


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Vodafone PLC,London

Vodafone,Netherland (85%)


2013

Piramal 5%Essar 11%

FDI in Telecom100%

Vodafone India


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TRANSFER PRICING(2013-14)


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Pantaloon

Birla

1000 Crore

Pantaloon


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Big Bazaar Pantaloon

1000 Crore


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900 Crore

Decides the transferprice of shares

CGT

100Crore


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90 Crore

Decides transfer price of shares1000 cr. 100 Cr.

CGT

10 Crore

UNDER-VALUATION

Why Transfer?: MNC


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Reduce Tax liability (Netherland =>Mauritius)

Replace the Chain of command

Why Transfer?: MNC

Vodafone PLC

20


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Vodafone PLC,London

Vodafone,Netherland

Vodafone call center

20


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Vodafone PLC

Vodafone


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Vodafone PLC,London

Vodafone,Netherland

Vodafone IndiaServices (VISPL)

VodafoneTeleservicesIndia Holding

Mauritius.

FY 2013

8500

Crore

3,700 Cr.


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Present stand


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IndianArbitration Act

Arbitration


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Arbitration Act 86 Foreign investment Private judge, consent of both parties Quick, convenient, inexpensive

Present stand


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IndianArbitration Act

If talks failed=>courtSo, Netherland BIPA

BIPA: doesnt

cover Tax matter

UNICITRA

UNICITRAL


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U.N. commission on International Trade Law by UNGA in 1966

Mandate: dispute resolution, internationalpayments UNGA => 60 members => UNCITRAL (3years)

India member Annual sessions alternatively @New Yorkand Vienna.


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DTC recent proposals


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taxable income right now DTC pro2-5 lakh 10 10

>5 lakh 20 20>10 lakh 30 30>10 crore 35

dividend >1crore

-- additiona

Wealth Tax>30 lakh, 1%

- only physicalassets

- phys- finan


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MCQ- Find correct statement


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A. CGT is an example of indirect taxlevied during sale of capital assets.

B. During such transaction, Seller ofCapital assets, is required to withholdthe tax.

C. Both A and BD. Neither A nor B

1. Skip 2. Attempt 3. Mark n

Review MCQ- Find Incorrect statement


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A. CGT is an example of indirect taxlevied during sale of capital assets.

(WRONG )B. During such transaction, Seller ofCapital assets, is required to withholdthe tax. ( WRONG )



Review


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MCQ- Find Correct statement


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A. State government can levy stamp dutyon insurance policies, shares anddebentures.

B. Union government can levy tax on thetransfer of shares and debentures.



MCQ- Find Correct statement


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A. State government can levy stamp duton insurance policies & promissory

notes. (Union List I, #91) WRONGB. Union government can levy tax on thetransfer of shares and debentures.(Union List I, #91) right



N ki T R


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Nokia Tax Row

#


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Royalty payment

CEOE ti


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SHARE-HOLDERS


ExecutivesStaff

PROFIT

DIVIDEND


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IT Act > Corporation Ta


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Indian Company => 30%

Foreign companyProfit: 40%Royalties: 10%

IT Act => Corporation Tax


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k


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TDSWithholding TaxIndo-Finland DTAA

India

NokiaFinland

90 Cr. Royalties

N ki Rs.25,000 Cr


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India

NokiaFinland

Rs.25,000 Crroyalties

2006-2013

Timeline 2013


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Jan 2013: IT raids Sriperumbudur (TamilNadu) plant and offices in Chennai.

Feb: Nokia s bank accounts ceased April 2013: Delhi HC unfreeze

Nokia s argument


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1. India-Finland DTAA: TDS on Royaltiesyes

2. but Computer software not in definition3. Computer software = RAW Material

Income Tax Department s argument


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1. Microsoft 8 billion USD

2. But did not explain liability3. Quick action to prevent escape

Ch i l R 2500 CNokia s Current Strategy


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Chennai plant = Rs.2500 Cr Tax =6000+ cr.

Case can go on. Not part of Microsoft deal. Continue production on contract

VRS offered Case Defeat=> Attach factory.


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Nokia Tax Row

Royalties Tax


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SriperumbudurSEZ

Royalties TaxCorporate Tax

Export duty 1%Excise duty 0%

Domestic4% VAT

Export proof not given2009-12


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After thoughts

1.Fiscal imperialism2.DTAA models

3.Avoidance until when?

Post WW1, League of nations


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Indian subsidiary

British Company

Indian Authorities

DividendRoyalty PaymentInterest Payment

UK Authorities

Residual ProfitSource country..x


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Tax agreement @Destination


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Vodafone PLC,London

Vodafone,Netherland Vodafone India

ModelOECD

90 Cr. tax

Fiscal imperialism

GST: Destination based tax


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GST 6%4% State GST(consumption)(Destination)

2% IG(Sourc


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1 DTAA: Legal technical definition After thoughts


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1. DTAA: Legal, technical, definitionloopholes will remain

2. Will continue until India becomes adeveloped country.3. Transfer pricing : under valuation ..

Right

4. Royalty Tax: IT stand Right (but whylate?)5. Destination vs Source=Even GST same

issue.

Direct tax BE 2013 RE 2013 AE 2014

Why activism? Tax shortfall


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Direct tax BE 2013 RE 2013 AE 2014

Corporation Tax

Income tax

Security Transaction tax

Wealth tax

total Direct tax6.68 lakh

crore6.36 lakh

crore7.58 la

cro

Shortfall : 6.68-6.36= 32,000 cores. Why?1.Inflation=> less sales => less profit2.Policy paralysis=>


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Maruti SuzukiGujarat plant Controversy


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1 Manager deadMANESAR UNREST, 2012


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1 Manager dead 2 Japanese Executive

injures Rs. >3000 crore


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M

Su

MGu

Cost priceProfit margin

HDFC, Reliance Cap,ICICI SBI Suzuki (56%)

Why controversy?


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ICICI, SBI

Less profit forMS=>less dividend

MS. Will become meredistributor/ marketingcompany.

Suzuki (56%)


Why controversy?


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ICICI, SBI

Maruti-Suzuki hassurplus of Rs.7500 cr.

Why not upgradeHaryana?

100% subsidiary inGujarat

3000 crore. Surplu 15 years lease If not renewed, it ll

merged with MaruSuzuki.

(2017) 25-30k Cr.

Suzuki (56%)


Why controversy?


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ICICI, SBI

Why not upgradeHaryana?

Profit re-invested iGujarat

@Haryana 1.5 millcars / PA

@Gujarat 2.5 milli(2017)

No Risk for Marut

Suzuki (56%)

Mehana ~1200 Acre.Positive Points for Gujarat


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640 acres in Becharaji ; 550 acres in Vithalapur

Investment of Rs. 25-30k Cr. Full Capacity in 2017 2.5 million cars /PA Autohub- replacing Tamilnadu and Haryana Suzuki Motors Gujarat ltd=>Ahmedabad (HQ) EMPLOYMENT


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N t l t


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Next lecture

1. Bitcoins2. Banking transaction Tax (BTT)

Documents

Mamata L5 P2 Vodafone Nokia Maruti