The move by India was prompted by the country’s rapid adoption of digital coins, bringing it closer to regulating such investments following several warnings about the risks of terrorism and money laundering from the central bank. The move also follows China beginning CBDC trials in numerous cities, while the US Federal Reserve and the Bank of England are exploring possibilities for their economies. 

On Tuesday, Finance Minister Nirmala Sitharaman said in her budget speech that income from the transfer of any digital assets will be taxed at 30%. 

“There’s been a phenomenal increase in transactions in virtual digital assets,” Sitharaman said. “The magnitude and frequency of these transactions have made it imperative to provide for a specific tax regime.”

Sitharaman also announced the launch of a central bank digital currency for the financial year beginning in April, to attract more efficient and more affordable currency management. 

India’s “Cryptocurrency and Regulator of Official Digital Currency” bill will generate a facilitative framework for the Reserve Bank of India to issue an official digital currency and ban most private cryptocurrencies. The approach will create obstacles for thousands of peer-to-peer currencies that are currently thriving outside of regulatory scrutiny. 

Following the news, the price of bitcoin dropped by 1.19% and, according to coinmarketcap.com, was trading at $56,615.97 at 12pm CET on Wednesday. 

However, the announcement by the Indian government was not wholly unexpected. Earlier this month, prime minister Narendra Modi said that all democratic nations must work together to ensure cryptocurrency “does not end up in wrong hands, which can spoil our youth.” 

Earlier in the year, the Indian government considered criminalising the possession, issuance, trading, mining, and transference of crypto assets. According to Reuters, the government plans to ban private crypto assets while simultaneously paving the way for a new Central Bank Digital Currency (CBDC), which the government plans to launch by December this year. 

Bitcoin fell on Monday morning after reaching a new record-high price over the weekend.

The world’s most highly valued cryptocurrency broke through the $60,000 barrier for the first time during weekend trading, reaching a high of $61,674 on Saturday. However, the price went into retreat at the beginning of the week, falling 4.4% to $57,847 at 9:15 AM in London.

This latest Bitcoin price shock comes amid reports that India will propose a law banning cryptocurrencies altogether, potentially blocking its use in one of the world’s largest markets.

Reuters reported on Sunday that senior officials in India’s government are looking to impose “one of the world’s strictest policies against cryptocurrencies,” which will impose fines on anyone trading or even holding digital assets. Bitcoin miners will also be penalised, sources claimed.

Under the proposed bill, cryptocurrency holders would be given six months to liquidate their digital assets, after which penalties will be levived.

Should the ban become law, India would become the first major economy to ban the use of cryptocurrency altogether.

As normally follows when Bitcoin suffers a price shock, the broader cryptocurrency market also went into retreat on Monday morning. Ethereum, the world’s second-largest cryptocurrency, was trading 5.7% lower against the dollar at a rate of $1,785.49 at the beginning of the week. The cryptocurrency market as a whole declined 4.5% over 24 hours.

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Despite this latest price plunge, the crypto market is still performing markedly better than it was six months ago. Bitcoin has rallied over 400% during this period, owing to interest from established players such as Tesla and Square. Adoption by PayPal has also helped to pull cryptocurrencies closer to the payments mainstream.

Phoenix Legal is a full-service Indian law firm with offices in the country’s two major cities and commercial hubs New Delhi and Mumbai. The firm offers an extensive range of transactional, regulatory, advisory and dispute resolution services and advises a diverse clientele which includes companies, banks and financial institutions, funds, promoter groups, public sector undertakings and individuals, both in India and overseas.

Phoenix Legal acts for some of the largest corporations from around the world in different areas, including Fortune 500 companies. The firm has advised on some of the most complex and headline matters in different practice areas.

For an update on M&A in India, we caught up with Manjula Chawla, the Co-founding Partner of Phoenix Legal, who concentrates her practice in the areas of strategic investments, M&As, corporate governance, finance and restructuring, and general corporate & commercial matters, Ritika Ganju, who’s a partner with a practice focused in M&A, commercial transactions and corporate and compliance-related advisory and Kripi Kathuria - a Principal Associate whose areas of expertise include M&A, joint ventures, employment, commercial transactions and general corporate advisory.

Despite the pandemic, India has become a hotspot for M&A in 2020. What do you attribute this to?

India’s ability to be a hotspot for M&A even during these times can be attributed to a gamut of opportunities that Indian businesses offered. These included scope for creation of high value with merged synergies, the constant need for investment in innovative and growing business setups and rescue or rejuvenation operations for financially distressed segments. This was coupled with the consistent belief in India’s potential and the COVID crisis seen only as a temporary slowdown.

Considering the sector-wise activities on the Indian M&A plane in the last six months, the abovementioned opportunities seem to be concentrated in certain core sectors such as telecom, energy and natural resources, banking and IT & ITeS. Amongst the big-ticket transactions expected to create substantial business value, the acquisition of 10% stake in Reliance Jio Platform in the telecom sector by Facebook was the silver lining with a value of USD 62.43 bn. This was followed by an investment of USD 9.5 bn by nine global PE firms in Jio Platforms. The energy and natural resources sector saw some major domestic deals led by NTPC Ltd acquiring a majority stake in THDC India Ltd and a 100% stake in North Eastern Electric Power Corporation Ltd. Among the acquisitions of distressed businesses, SBI consortium took the lead by acquiring a majority stake in distressed Yes Bank. One of the biggest transactions in the IT sector was the 100% acquisition of Piramal Enterprises Ltd.’s healthcare insights and analytics business by US-based Clarivate Analytics Plc.

PE investment has also contributed significantly to the active M&A scenario. Investments from PE picked up during the first half of 2020 at an increase of 27% over the investment recorded for this period in 2019. A substantial portion of this investment went into the booming start-up sector engaged in a wide array of businesses including FinTech, HealthTech and EdTech.

With the Jio-Facebook deal getting the ball rolling in the digital platform market and the expected acquisition of a stake in Jio by Google, more investment and consolidation activity could be in and around the digital sector.

Considering the current economic environment, do you think that this trend is likely to continue? 

We are positive about the M&A and investment scenario in coming times despite the pandemic. Unlike the 2008 financial crisis, the international corporate world does not plan to abort expansion and investment opportunities, but perhaps put some of their plans on hold until the world is in a relatively better position. Having said this, the nature of M&A transactions may not be typical in the very near future as deal structures are likely to be more innovative, keeping in mind the commercial uncertainties and ensuring that the survival of the business is the immediate goal.

Digital technology has come out as a winner in these times, opening up a whole lot of opportunities for novel ideas and innovations in the sector. PE investment, which emerged strongly during the initial pandemic period, is likely to continue to lead the investment forefront. With the Jio-Facebook deal getting the ball rolling in the digital platform market and the expected acquisition of a stake in Jio by Google, more investment and consolidation activity could be in and around the digital sector. The start-up sector is likely to continue to receive high traction from PE investors, especially FinTech, EdTech, retail, HealthTech, enterprise infrastructure and logistics segments. This could prove to be good news for homegrown start-ups seeking investments and it could help them remain afloat when many established enterprises struggle to survive.

Considering the uncertain current business environment, India is more likely to structure existing businesses to extract the best value from available resources while minimising costs. Therefore, internal restructuring and reorganisation of businesses could be very well expected in the coming days.

In addition to the above, acquisition of financially distressed businesses is likely to continue and add to the investment activity pool in the very near future.

Lastly, given that valuation of Indian businesses is likely to be more realistic until the world recovers, acquisition and investment opportunities may become all the more attractive for investors as well as corporates proposing to expand.

In what ways has the COVID-19 pandemic affected your work within M&A?

The corporate M&A lawyers of the firm have been fairly busy during the pandemic. We did not see any recession in M&A deals and proposals that were in the pipeline before the on-set of the pandemic and many of these were successfully closed during the months of April, May and June. These deals involved strategic acquisitions and divestitures, fresh PE investment, internal reorganisation of business as well as sale and purchase of distressed assets. Another aspect that contributed to the continuity of work on this front was the staggered closing of transactions which had their first closing prior to March 2020. There was an overall slowdown in the months of July and August 2020, but looking at the inquiries and propositions in discussions, we are confident that corporate and M&A life will not take long to be back on track.

Digital sales from outlets like Target enjoyed an unprecedented 275% growth in recent months, according to the US Census Bureau. It seems that this is not an isolated case as businesses, especially ecommerce companies, are experiencing the same growth. With global currencies having taken a hit during the pandemic, it was uncertain as to what direction fintech would take. As it turns out, the world is now sprinting toward financial inclusiveness and eCommerce diversity.

The Need for Financial Inclusiveness in the International Market

Prior to the pandemic hitting, online transactions with cash-on-delivery (COD) options were highly popular for consumers around the globe. This, however, is no longer feasible in places like India and China where COD options are now disabled in order to minimise risk moving forward. As such, new avenues were needed and fintech answered the call. Fintech has long been regarded as a great enabler of financial inclusion by providing a reimagining of business models and processes, according to the World Bank. They believe that it is through fintech that suitable alternatives to COD will be found like crowdfunding, cashless transactions, and even peer-to-peer lending options.

Fashion Ecommerce Embracing Diversity, Accessibility, and Inclusivity

While ecommerce is not a new concept in the fashion industry, consumers are now more discerning, especially about diversity and inclusivity. Nearly 34% of respondents in an Adobe survey said that they boycotted a brand due to a lack of diversity in advertising, while another 61% said diversity is the key to good advertising. This isn’t surprising, as high fashion brands have had their share of controversies like D&G’s “Eating with Chopsticks” or Gucci’s balaclava jumper. As such, fashion brands that are enlarging their ecommerce presence are actively reforming their advertising and marketing to emphasise inclusivity, accessibility, and diversity. One method that fashion eCommerce is trying out is redesigning their websites to be more accessible to a wider audience. Another is using a diverse sample of models for visual ads on their ecommerce platforms.

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Mobile Phone eCommerce Developments

A survey by Merchant Savvy found that nearly 70% of all eCommerce is conducted through mobile phones. While that number is high, retailers report that conversion rates vary as consumers still express concerns over security and user experience. In worst-case scenarios, not even 1 out of 10 successful transactions occurs via mobile phone. To combat this, brands are aiming to develop hybrid apps to work well with browsers as regular apps take up too much memory on devices. There is particular emphasis on making phones a universal digital wallet for frictionless and seamless transactions. This, however, requires better security, infrastructure, and devices capable of supporting the whole concept. As such, more mobile phone eCommerce development is being planned by large brands like Amazon, Apple, and others.

With the world impatient to move on from the effects of the pandemic, the fintech industry is striving to make sure that they have what it takes to meet demand. The upcoming months can expect a lot of additional emphasis on financial technology development. With eCommerce now the norm in transactions, it is exciting to see how else financial inclusiveness, diversity, and online transactions shall take root and bloom.

Still, there are countless success stories of humble immigrants coming to the US with not much more than their dreams (and a hard work ethic), beating the odds, and becoming millionaires (and in many cases, billionaires). Elon Musk of Tesla is one of the more recent examples, but there are thousands of other immigrants who came to the US, put in the work, and achieved their dreams. 

So then, how does one start the process of becoming a millionaire? What are some of the nuances of the US economy that immigrants need to be aware of? Should you invest in real estate? What about the stock market, or its less-than-stable cousin cryptocurrency?

Whether you’re looking for tips on forming an investment strategy, want to learn more about how the US economy works, or simply need some advice on saving money, we have you covered. Below we cover everything you’ll need to be prepared for the process of becoming a millionaire in the US. 

Million Dollar Saving Strategies

Believe it or not, most people have the ability to save up to a million dollars in their lifetime. Even if you’re not making a six-figure salary, you can easily employ some basic saving strategies to stretch your dollars into a million (over several years, of course). 

With that being said, there are a few major variables that can affect how long it will take you to save (up to) a million dollars. These variables are listed below:

• What your annual revenue is (i.e. how much money you earn per year)
• What your annual expenses are 
• How much money you’re able to save on a monthly/yearly basis 
• What the growth rate of your investment(s) is
• What your savings rate is (i.e. the percentage you’re saving relative to your income)

The majority of financial planners in the US recommend saving at least 10 to 15% of your annual income. If at all possible, and you want to increase your savings rate, you should try to up that percentage (at least a little bit). Saving as much as possible, cutting costs when it makes sense, and living frugally (note: not cheaply) can all help to maximize your savings strategy. 

Making Your First Million Will Be Difficult: Prepare Yourself 

Lots of people have the quintessential romantic notion that they’ll work hard for a few years, meet the right people, the stars will align, etc., and that making their first million will somehow “just happen.” However, the reality of the situation is that making your first million dollars is almost always an uphill battle.

Lots of people have the quintessential romantic notion that they’ll work hard for a few years, meet the right people, the stars will align, etc., and that making their first million will somehow “just happen.” However, the reality of the situation is that making your first million dollars is almost always an uphill battle.

Luckily, though, that battle really only applies for the first million. As you should know by now, it takes money to make money (and having a million dollars to invest in your business ideas/investments makes it a lot easier to increase your revenue). There are tens of millions of millionaires in the US, and many of those are immigrants. 

Indian-born immigrants account for many of these millionaires. But millionaires can come from anywhere and achieve their wealth through different methods, which means that it’s possible for anyone to become a millionaire - you just need to understand that it will take a certain work ethic and a lot of financial savvy. 

Note: If you’re an immigrant looking to start saving money, you should think about finding a side hustle (or two, or three). Most independently wealthy individuals amassed their wealth through hard work (i.e. not just working a basic 9 to 5). Jobs for Indians in the US can be found via countless online resources.

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Quick Tips for Your First Million

Use some of the basic tips posted below to increase your chances of becoming a millionaire. Remember, becoming a millionaire in the US should be thought of as a journey, and emphasizing the actual process (rather than the result) is what will elevate your finances to the next level.

• Focus on finding investment opportunities to increase your annual revenue
• Increasing your number of revenue streams is vastly undervalued (and very important)
• Avoid taking on debt (even if it’s for business reasons)
• Live as frugally as possible (but don’t neglect your health or mental well-being)
• Constantly be learning and developing new skillsets
• Look for new employment opportunities and/or side hustles that can increase your revenue stream
• Save as much money as possible and then invest that money into emerging markets

For an update on tax in India, Finance Monthly speaks with Shipra Walia, Managing Partner & Lead Consultant at W S & Co. – a Chartered Accountancy firm, rendering comprehensive professional services. Based in Noida, Uttar Pradesh, the company offers statutory audits, GST audit and compliances, tax consultancy (direct & indirect including international and domestic law), valuation, advisory on issues covered under Double Taxation Avoidance Agreements, expat taxation, audit, management consultancy, accounting services, secretarial services, representations before various authorities including Set Com and DRP etc.

How is the corporate tax system structured in India?

India has a dual taxation structure. One is direct tax paid by the taxpayer directly to the government like stamp duty, income tax, etc. and the other one is the indirect tax that reaches to the government through supply chain which is GST/VAT/Excise Duty/Customs duty. While a resident is taxed on their worldwide income, a non-resident is taxed only on income that is received in India, or that arises or is deemed to accrue in India.

How complex is the tax system in India? Are tax disputes commonplace and how are disputes resolved?

Every tax system has some inherent complexities as per the economy of the country. However, the equivalent measures are also there to curb or meet any tax litigations. Further, there are various laws which help with resolving litigations or reaching an agreement at an acceptable level for both parties. Similar, provisions exist for solving conflicts in cross-border transactions. For example, the Double Taxation Avoidance Agreements between India and foreign companies provide for MAP i.e. Mutual Agreement Procedure.

As per the amended provisions, any company whose location and effective management is in India will be treated as an Indian company and will be subject to all domestic laws

Have there been any amendments to India’s tax legislation since we last spoke in 2017?

Recently, India has included the concept of Place of Effective Management (POEM) in our tax legislation. Previously, if the control and management of a company was not located wholly in India, this was considered as a foreign company.

As per the amended provisions, any company whose location and effective management is in India will be treated as an Indian company and will be subject to all domestic laws. The rules also clarify the computation of active and passive business activity, the adherence to global group policies on accounting, HR, IT, supply chain. Additionally, routine banking operations shall not lead to POEM in India and strategic and policy decisions should be relevant in determining POEM, as opposed to routine operational decisions for oversight of day-to-day business operations.

Similarly, a new Goods and Service Tax (GST) was implemented in India in July 2017. GST’s mission is to exclude the multiple individuals and authorities involved in the process and is seen as one of the most influential transformations in the field of tax.

What tax considerations must be taken into account for foreign businesses who wish to expand their business operations in India?

India is a prominent upcoming market. With the government’s focus on “Made in India”, there are various tax benefits available in the country - either based on the product or the activity of the specific business. Under the changes, the initiatives are also driven towards improving exports with various countries.

With the government’s focus on “Made in India”, there are various tax benefits available in the country.

Tax benefits for angel investors, flexible valuation norms, no tax on remittance of profits by a branch of a non-resident company to its Head Office, no dividend distribution tax on Limited Liability Partnerships are amongst the few inbuilt attractions for expanding your business operations in India.

What tax incentives are in place for investors operating in India?

Tax incentives provided in the Indian tax structure can be broadly classified into location-based incentive, industry-specific incentives and activity based incentives. There are various SEZs set up for special benefits to 100% export-oriented units, as well as special international financial services centres (IFSC) which also serve as a catalyst for foreign investors that handle cross-border financial products and services.

Contact details:  

Website: www.wsco.in

Email: shipra@wsco.in

Tel: 9811738764

Hyundai Motor Company, South Korea’s largest automaker, has announced a partnership with Revv, India's fastest growing self-drive car sharing company to develop an innovative car sharing service and conduct creative marketing activities in India. The strategic partnership, including Hyundai Motor’s investment in Revv, sees innovative future mobility services gain the company’s first foothold in the Indian mobility market.

The strategic investment and partnership will enable both Hyundai Motor and Revv to build competency and the technology necessary for leading the future mobility market in India; an evolving market showing exponential growth, expanding from US$ 900 million in 2016 to US$ 1.5 billion in 2018, and projected to expand to US$ 2 billion by 2020. India’s 15,000 car sharing vehicles are expected to grow to 50,000 by 2020, and 150,000 by 2022. Furthermore, millennials, who are heavy users of car sharing services, comprise 35% of the total population of India. The market growth potential for mobility services is stronger than that of any other global market.

Gopika Pant & Vineet Gupta from Indian Law Partners acted as Legal Adviser to Hyundai Motor Company, Korea.

In the past week, India’s news have been dominated by billionaire jeweller, Nirav Modi (no relation to the Indian Prime Minister), who has been accused of defrauding India’s second largest government-owned bank of $1.8 billion or the biggest banking fraud the country has ever witnessed. Mr. Modi, who calls himself “haute diamantaire”, has been the preferred jeweller of both Hollywood and Bollywood celebrities, including actress Priyanka Chopra, who was appointed brand ambassador by the company last year. Earlier this month, Punjab National Bank (PNB) first filed a criminal complaint against the billionaire for causing the bank a “wrongful loss” of an estimated $40 million. However, as soon as investigations began, it was discovered that the actual figure was $1.77 billion – allegedly the result of a series of fraudulent transactions carried out in the past 7 years. Analysts suggest that Nirav Modi and his uncle Mehul Choksi have connived with PNB employees to create fake letters of undertaking (LoUs) – a guarantee that a bank is obliged to repay the loan if the actual borrower fails to do so – using them to secure loans from overseas branches of other, predominantly Indian, banks. This would mean that every time a loan was due, Mr. Modi and his uncle would ask bank employees to open another LoU equivalent to the loan amount, including the interest that was due on it. The money from the new LoU would then be used to pay off the loan and the interest due on the previous LoU.

What we know so far

Conveniently, it has been reported that Nirav Modi and his entire family left India during the first week of the year. He was seen at the World Economic Forum in Davos – only six days before PNB first filed a criminal complaint against Modi and his associates - where he even posed for a group photo with India’s Prime Minister Narendra Modi. The alleged scam has prompted a number of protests against the jeweller and the Indian Government, as well as a heated debate and hundreds of memes on social media.

Thus far, the government has made some key arrests, including two bank officials and a business associate of Mr. Modi's on suspicion of helping him, whilst global manhunt has been launched by India's Central Bureau of Investigation (CBI) for the billionaire and his uncle, whose passports have been revoked. Mr. Modi's lawyer has claimed that his client ‘went out of India for business purpose’ and that his family members normally ‘stay abroad most of the time’. Mr. Choksi's firm, Gitanjali Gems, has denied any involvement in the fraud scandal.

The Income Tax Department’s investigations have also shed light on the Nirav Modi Group’s unaccounted and unexplained funds, major discrepancies in stock valuations and instances of suspicious foreign funding. It has also been revealed that the jewellery brand accepted payments in cash on a regular basis, without accounting for all of them.

The Bigger Picture: India’s Fraud Problem

But how does the alleged scam look when compared to other frauds that Indian banks are faced with routinely?

The typical fraud cases in India refer to cases where the borrower intentionally tries to deceive the lending bank without repaying the loan.

In an article for BBC News, Vivek Kaul, author of India's Big Government—The Intrusive State and How It is Hurting Us, points out that in July 2017, India’s Finance Ministry shared data detailing that PNB’s controls were in bad shape and when compared to other 77 banks, the second largest government-owned bank  in the country was facing the highest losses when it came to fraud between the years 2012-2013 and 2016-2017. During the same period of time, Indian banks saw total losses amounting to $10.8bn, with PNB’s losses amounting to $1.4bn.

More generally, over the last few years, India’s government-owned banks have been experiencing issues related to corporate loan defaults – with their bad loans ratio stood at 13.5% as of September 2017. They have been forced to write off loans worth an estimated $38.8bn billion for the period of five years ending March 31, 2017. The Times of India Newspaper has estimated that in the past 11 years, the government has injected around $40.3bn into the banking sector. How could Indian people keep calm when it’s so clear that their government has been spending capital that could be used for healthcare, education and agriculture on trying to save that banks that it owns?

What makes all of this truly worrying is that it might be only the tip of an iceberg – the rest of the iceberg being a problem that runs much deeper. Who knows what tomorrow may bring for Nirav Modi’s case, PNB and the Indian banking system at large.

Bangalore-based software company Ezetap has developed a platform that makes it easy to pay anywhere with any device you like. It has created software allowing a merchant with a smartphone to accept any type of payment and see that money moved seamlessly into their own bank account.

Kunj Vaidya has been recently given the responsibility for Price Waterhouse & Co.’s transfer pricing practice. Prior to taking over this mantle, he had been involved in setting up and establishing transfer pricing practices in Chennai and Sri Lanka, where PWC is  now established as a market leader.

Kunj has practiced transfer pricing in the USA, Australia and India. Since relocating back to India in early 2010, his primary focus has been to help clients plan well in advance and thereafter, provide certainty using various dispute resolution mechanisms. A large part of his role as the national leader will include ideating new solutions and strategies for their clients including significant use of technology, to deliver value to clients. Here Kunj tells Finance Monthly more about his new role and sheds some light on transfer pricing in India.

What is your take on Indian transfer pricing compliance? How are you advising clients on approaching this?

Traditionally, transfer pricing compliance was aimed at providing specific and largely one-sided pieces of information along with certification of reported numbers.

In October 2015, three-layered transfer pricing documentation requirements have been recommended, as part of the final reports on Base Erosion and Profit Shifting (BEPS) initiative of the OECD and G-20 countries. Most countries, including India, have adopted these requirements.

Global corporations are now required to document and present information regarding the ownership and operational structures, key transaction flows and pricing policies within the group. This documentation necessitates a holistic view to be considered by corporations, requiring involvement of their business teams.

Corporations need to consider transfer pricing while taking strategic decisions, and not as a post facto compliance exercise.

How have transfer pricing audits evolved in India?

In the last 15 years or so, the audit focus has matured from routine issues, such as requirement of high mark-ups for services and disallowances of royalties/ service charges to also complex issues like re-characterisation of transactions, valuation of intangibles, location savings, compensation for advertisement, marketing and brand promotion spends, etc.

In early 2016, the procedure for selecting cases for audits was overhauled to focus on cases with high potential of transfer pricing risk.

We are experiencing a different undertone in TP audit approach across the country. Taking guidance from the BEPS Reports, the audit approach is increasingly leaning towards understanding the business of taxpayers – including meeting with business teams. Another area is active exchange of information with overseas tax authorities.

How should the audit approach evolve from here on?

We believe that audits should happen in a more cooperative and amicable manner.

With the introduction of three-layered documentation, the ‘big picture’ of a corporation will be available to tax authorities, It is hoped that selected parts of this documentation are not used against taxpayers without appreciating the entirety of surrounding facts and circumstances.

In our ongoing recommendations to the Government, we have recommended audits to be conducted in a block of say 2-3 years to consider business life-cycles, this would provide a larger picture of the business to the authorities and would also reduce audit efforts for taxpayers.

How have outcomes been for taxpayers at higher levels in appeals?

First level appellate forums are from within the tax administration, and success rate for taxpayers at these levels has been rather low.

The second level appellate authority - the Tribunal is outside of the tax administration. Tribunal rulings have been rather rational and success rate for taxpayers across the country has been relatively very high.

How do you help companies manage transfer pricing issues and what strategies do you implement in the tax risk analysis to assist your clients effectively?

With the ever increasing focus of tax authorities globally on transfer pricing, companies need to plan transfer pricing approaches upfront, We have helped several companies in setting up transfer pricing policies to meet their business objectives, at the same time prepare them adequately from possible challenges in future.

In cases where we foresee potential risks, we believe that transparency is the best strategy. Our advice to clients has been to disclose pertinent facts and discuss relevant issues upfront with tax authorities. This is where I believe the Indian APA program has also been very helpful!

Has the Government taken any initiatives to ease transfer pricing burden on corporations? How satisfied are you with these efforts?

The Government is acutely aware of the challenging transfer pricing scenario in India, and how it has been impeding foreign investment into the country. The Government has been consciously bringing global best practices to India.

One key measure which has received resounding success in India is the APA program. The feedback from the taxpayer community for the program has been extremely positive (including Bilateral agreements with Japan, UK, US).

India also introduced safe harbour rules a few years back, but the program has had little success. However, I understand that the safe harbour rules are being revisited and rules with a more rational outlook may be issued sometime soon!

What changes do you see in the importance companies attach to transfer pricing?

We have witnessed a sea change here – from being seen as a compliance burden, increasingly, transfer pricing issues have even caught the attention of the CXO suites. In fact, corporations are increasingly realising that transfer pricing is also a reputation and governance issue for them.

What role does technology play in transfer pricing and how feasible is this for corporations to adopt?

Technology will increasingly play an important role in transfer pricing. Corporations will need to be able to use technology to build and manage frameworks to ensure that transfer pricing policies are followed, ensure compliance with terms and critical assumptions agreed in an APA, identify red flags or exceptions, and to report key indicators to the management and other stakeholders.

Use of technology in transfer pricing in the above areas could be fairly new but corporations will need to find a way to integrate technology and transfer pricing,

Another way of looking at technology is how it will play a role in the value chain of companies including those operating in traditional businesses.

As a national leader in transfer pricing - how are you developing new strategies and ways to help your clients?

Our endeavour is to help clients look around the corner and prepare them for what is to come!

In recent times, our key focus areas have been the following:

• Conceptualising and developing technology tools to help clients manage their transfer pricing function. We also help clients assess risk in their existing operations using our internally developed data analysis tools.
• Facilitating dialogue between taxpayer fraternity and the Government on transfer pricing matters.
• Helping clients understand the implications of ever-evolving legislative developments on their transfer prices, including, for instance, aligning GST and transfer pricing, understanding transfer pricing implications of migrating to Ind-AS (Indian IFRS equivalent) reporting environment, leveraging transfer pricing compliances for corporate law requirements around related party transactions, implications under General Anti Avoidance Rules (GAAR), etc.
• Strategizing transfer pricing dispute management – including litigation strategy; and proactive dispute resolution options.

What do you see as potential innovative solutions by the Government for some of the transfer pricing issues corporations are facing?

The Government is keen to improve ease of doing business in India, and give a push to some of its pet programs such as ‘Make in India’.

The Government may consider some solutions such as joint customs and transfer pricing audits for imports; joint audits by different Governments and their agreement on pricing; audits for a block of years together; settlement options for transfer pricing disputes etc. Another area, which is beginning to find acceptance in EU is the use of arbitration to resolve transfer pricing and international tax disputes!

One of the thrust areas of the BEPS initiative is effective dispute resolution. The Government should consider providing bilateral transfer pricing dispute resolution window to residents of all tax treaty partners, rather than only few countries currently.

What do you see as the future of transfer pricing?

Going forward, Governments will increasingly use technology for transfer pricing risk assessments and risk management. We have also started seeing increasing cooperation and exchange of information between Governments. There will be increased emphasis and reliance on value chain analysis and insistence on use of profit split methods, as more global information becomes readily available.

The future of transfer pricing lies somewhere in being proactive, better relationships, more transparency and cooperation between Government and taxpayers.

The theme of the Budget, as articulated by the Finance Minister, is to transform and energise the country and the economy - as well as a much cleaner economy. How the year ahead will play out will depend on the growth in the major economies, fresh investment by Indian companies, and spending by consumers and the government.

The Budget laid emphasis on digitization of tax administration, use of IT systems to reduce human intervention and e-assessment ensuring transparency and timeliness.

Ultimately, the Budget turned out to be in line with the government's vision and policies so far. It had several announcements impacting startups directly and indirectly. Analysis of such provisions as made by Neeraj Bhagat, Chartered Accountant and Founder of Neeraj Bhagat & Co. are as under:

Amendments having direct impact:

1. Reduced corporate income tax

Reduction in corporate tax for MSME to 25%: The government has decided to reduce the corporate income tax from FY 2017-18 onward to 25% from the current rate of 30% for all companies that had a turnover or gross receipts up to Rs. 50 crore in FY 2015-16. This would mean that small and medium scale companies having a turnover of up to Rs. 50 crore till FY 2015-16 and also the new companies can claim the benefit of this section. However, this benefit is available only to domestic companies. Foreign companies and other forms of businesses like LLP and partnership firms are not eligible for this reduced rate. Even individuals and HUFs are required to pay income tax @ 30% for income above Rs. 10 lakh. The idea is to promote private limited companies, which is a more structured form of business organization. This is a very welcome step for all startups and small and medium enterprises functioning under the company form. This matches our Budget expectations penned earlier.

2. Relief for small traders and businesses opting for presumptive taxation and having non-cash receipts

As announced during the demonetization period, the government has reduced the requirement u/s 44AD for declaring a minimum presumptive tax profit margin to 6% from the existing 8% in cases of non-cash receipts and turnover. This was already announced by way of a press circular and was much anticipated. Also, the threshold limit for maintenance of books of accounts for individuals and professionals has been increased to Rs. 2.5 lakh from Rs. 1.2 lakh and the limit for tax audit u/s 44AB has also been increased to Rs. 2 crore from the current limit of Rs. 1 crore for the individual/HUFs opting for presumptive taxation u/s 44AD.

3. Extension of time period for availing income tax benefits under Startup India Initiative

The startups recognized under the Startup India policy can now claim tax benefits in three out of the first seven years under Section 80-IAC of the Income-tax Act, 1961. Earlier, it was three out of the first five years. The government had received several representations that startups rarely earn profits in the first few years of their operations. This is again a welcome step and shall encourage more startups to register themselves under the government's Startup India initiative. This also matches our budget expectations penned earlier.

4. Carry forward of losses for companies whose shareholding has changed considerably

Section 79 of the Income-tax Act, 1961 allows carry forward of losses of a company for seven years and then set-off against profit of future years. However, there was a restriction wherein the carry forward and set-off were not allowed in case 51% shareholding didn't remain intact in the year of loss and in the year of set-off. With the startup ecosystem's changing environment and more investments and buyouts happening, the government has allowed carry forward and setting-off of losses even if majority shareholding has changed hands. However, this benefit is available only for startups recognized under the Startup India policy and eligible to claim benefits of Section 80-IAC (NIL income tax in three out of the first seven years).

5. No capital gains on conversion of preference shares to equity shares

Earlier, the conversion of preference shares into equity shares was considered a transfer and thus attracted capital gains tax. The government has exempted conversion of shares from preference to equity and otherwise from the definition of 'transfer' and given a big relief to startup investors who prefer buying convertible preference share. This is a very good step on the part of the government to boost the investments in startups.

6. Extension of time limit for use of MAT credit

The existing tax laws have a provision of MAT (Minimum Alternate Tax) at approximately 19% on book profits of all the companies, who may otherwise be not be paying corporate income tax due to some deductions or exemptions available under the Income-tax Act. However, credit of MAT was available for 10 years to be set off against normal income tax liability, when the taxes under normal income tax provisions exceeded MAT. Startups exempt from income tax under Section 80-IAC discussed above are also liable to pay MAT. For simplification, in the long run, the government is targeting reduced corporate income tax rate, reduced exemptions, and abolishment of MAT. However, for the time being, the government announced its inability of abolish MAT and rather extend the time period for availing MAT credit to 15 years from the current limit of 10 years. This will benefit startups claiming tax exemptions u/s 80-IAC but paying MAT and shall also benefit the companies who have huge MAT credit lying unused.

7. Penalty for late filing of income tax returns

After the end of each financial year, September 30 is the due date for income tax return filing for companies and assessees covered under tax audit. For others, the due date is July 31. Earlier, there was no or optional penalty for delay in return filing up to a certain date. However, now the government has prescribed a late filing fee of Rs. 5,000 for delay up to December 31 and Rs. 10,000 for further delay. However, the penalty has been limited to Rs. 1,000 in cases where the taxable income is up to Rs. 5 lakh. Many startups and startup founders do not take return filings within due date seriously. This is a wake-up call to all such startups and their founders. Also, this penalty is payable before filing of tax returns, along with other tax and interest liability.

Amendments towards 'ease of doing business':

1. Tax on indirect transfer in case of certain foreign portfolio investors

Section 9 of the Act deals with cases of income which are deemed to accrue or arise in India. Sub-section (1) of the said section creates a legal fiction that certain incomes shall be deemed to accrue or arise in India. Clause (i) of said sub-section (1) provides a set of circumstances in which income accruing or arising, directly or indirectly, is taxable in India. The said clause provides that all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India, or through the transfer of a capital asset situate in India, shall be deemed to accrue or arise in India.

The Finance Act, 2012 inserted certain clarificatory amendments in the provisions of Section 9. The amendments, inter-alia, included insertion of Explanation 5 in Section 9(1)(i) w.e.f. April 1, 1962. Explanation 5 clarified that an asset or capital asset, being any share or interest in a company or entity registered or incorporated outside India shall be deemed to be situated in India, if the share or interest derives, directly or indirectly, its value substantially from the assets located in India. In response to various queries raised by stakeholders seeking clarification on the scope of indirect transfer provisions, the CBDT issued Circular No 41 of 2016. However, concerns have been raised by stakeholders that the provisions result in multiple taxations. In order to address these concerns, it is proposed to amend the said section so as to clarify that Explanation 5 shall not apply to any asset or capital asset mentioned therein being investment held by non-resident, directly or indirectly, in a foreign institutional investor, as referred to in clause (a) of the Explanation to section 115AD, and registered as Category-I or Category II foreign portfolio investor under the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2014 made under the Securities and Exchange Board of India Act, 1992, as these entities are regulated and broad based. The proposed amendment is clarificatory in nature.

This amendment will take effect retrospectively from April 1, 2012, and will, accordingly, apply in relation to assessment year 2012-13 and subsequent years.

2. Provisions relating to domestic transfer pricing have also been relaxed, so as to cover only those companies which who are claiming profit-linked deductions or exemptions.
3. FIPB or the Foreign Investment Promotion Board has been done away with, leading to more emphasis on foreign direct investment (FDI) through the automatic route.

Amendments to boost digital economy and curb black money:

1. Cash payment for expense or acquisition of asset of Rs. 10,000 or more not allowed

Earlier, cash payment in a day of Rs. 20,000 or more was not allowed as an expense in the books of the company. Now the limit u/s 40A has been reduced to Rs. 10,000. Over and above this, the provision now also covers capital expenditure. If payment against a capital expense of Rs. 10,000 or more is done in violation of Section 43, the cost of such an asset would not get added to the total asset value, which would mean that no depreciation can be claimed on such assets and also the cash value would not form part of the cost of such asset, which will also increase the capital gains amount in case of any future sale.

2. Cash receipt of Rs. 3,00,000 or more would attract 100% penalty

A new Section 269ST has been proposed, to bar cash receipt or Rs. 3 lakh or more in a single day, or against a single bill or against a single occasion or event, attracting a penalty of the same amount.

(Source: Neeraj Bhagat & Co.)