Budget 2012: What it means for India Inc

17 Mar,2012

Local Deals Under Transfer Pricing

This is bad news for companies as their tax outgo and compliance burden will rise. Firms use transfer prices to shift profits to tax havens. The new rule will increase documentation for companies. Right now, these rules cover only deals between a domestic company and its overseas subsidiary.


No More Tax Surprises

An advance-pricing agreement is good news for MNCs investing in India. It will reduce disputes as taxpayers would know their liability on transactions within their group companies in advance. These pacts are binding on both the taxpayer and the government, but can be quashed if the taxpayer misinterprets facts. The agreements will end aggressive assessments and reduce tax arrears locked up in litigation.


Declaring Foreign Assets a Must

Taxpayers must declare overseas assets and income-tax offi cers can reopen their books for the past 16 years. The fi rst development could pave the way for an amnesty scheme while the second will increase compliance burden on taxpayers but check tax evasion.


Dressing Up Cash Trails to Get Tougher for Cos

Share premium in excess of fair market value will be treated as income. This will increase the tax outgo for firms as share premium has so far been treated as capital. A similar move to impose tax on cash credits, unexplained money and investments will check evasion. It will end the practice of closely-held companies laundering black money by bringing it back as share capital.


Offshore Transfers to Come Under Tax Net

In a big blow to foreign investors, the government has re-written law so that it can tax indirect transfer of capital assets or property located in India. The amendment, effected retrospectively from 1962-63, will empower the government to impose capital gains tax on Vodafone and other such M&A deals in the past. It’s one step back in tax reforms.


Source:The Economic Times

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