International Taxation and Transfer Pricing Update
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Sec. 94A empowers the tax authorities to deal with transactions with entities located in non-cooperative countries/jurisdiction. Sec. 94A was inserted in the Act by Finance Bill 2011 as an anti-avoidance measure to discourage transactions by resident taxpayers with persons located in a country which does not exchange information with India & the Government can notify such country or territory as a “Notified Jurisdictional Area”. The government has not notified the areas to which Sec. 94A shall be applicable.
The said section provides for the following consequences in case a tax payer enters into transaction with a person located in that notified jurisdiction area:
1) The parties entering into such a transaction shall be regarded as “associated enterprises” and the transaction shall be deemed to be an “international transaction” and accordingly, the transfer pricing provisions shall apply to such a transaction;
2) Deduction in respect of a payment made to any financial institution located in a notified jurisdictional area will not be allowed to the payer unless the tax payer furnishes an authorisation, in the prescribed form, authorising CBDT or any income tax authority acting on its behalf to seek relevant information from the said financial institution –
As per aforesaid notification, the following information and documents needs to be maintained:
Ø The assessee shall cause the first copy of the duly filled Form No. 10FC to be deposited with or transmitted to the financial institution referred to in clause (a) of sub-section (3) of section 94A;
Ø The second copy of the Form No. 10FC along with the evidence of the first copy of said Form having been deposited or transmitted to the financial institution shall be submitted by the assessee to the Assessing Officer having jurisdiction over him.
3) Deduction in respect of any other expenditure (including depreciation) arising from the transaction with a person located in a notified jurisdictional area shall not be allowed unless the tax payer maintains such other documents and furnishes the information as may be prescribed
As per aforesaid notification, the assessee who has entered into a transaction with a person located in a notified jurisdictional area (hereinafter referred to as the specified person) shall, in addition to information and documents to be maintained as per Transfer Pricing regime [Rule 10D(1)], keep and maintain the following information and documents:
Ø a profile of the multinational group of which the specified person is a part along with the name, address, legal status and country of tax residence of each of the enterprises comprised in the group with whom the assessee has entered into a transaction, and ownership linkage among them;
Ø a broad description of the business of the specified person and the industry it operates in;
Ø any other information, data or document, which may be relevant for the transaction with the specified person;
Ø the information and documents specified in sub-rule (5) shall be for the period upto the due date of filing of return of income under sub-section (1) of section 139;
Ø the information and documents specified in sub-rule (5) shall be kept and maintained for a period of eight years from the end of the relevant assessment year.
4) If any sum is received from a person located in the notified jurisdictional area then the onus is on the tax payer to satisfactorily explain the source of such money and in case of his failure to do so the amount shall be deemed to be the income of the tax payer. This provision is similar to an existing provision which empowers the tax authorities to treat unexplained credits as the recipient’s income;
5) Any payment made to a person located in the notified jurisdiction shall be subject to deduction of tax at the higher of the rates specified in the relevant provision of the Act or rate or rates in force or a rate of 30%.Form No.10FC provides for irrevocable authorization to CBDT for obtaining information about accounts maintained with Financial Institution (FI) in notified jurisdictional areas. Based on authorization, CBDT can obtain all information and records, available to assessee who is engaged in respect to any payment made to any financial institution located in notified jurisdictional area.
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Vikash Kumar Jha
05-Jul-2013 , 02:03:23 amSo useful information.... thanks