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    The Organization for Economic Cooperation and Development (“OECD”), has recently revised the Transfer Pricing (“TP”) Guidelines for Multinational Enterprises (“MNEs”) and Tax Administrations. Mainly incorporating its guidance provided in the 2015 BEPS reports to align transfer pricing outcomes with value creation and transfer pricing documentation.

     

    The purpose of the revision is to bring consistency in the guidelines with there commendations & outcomes ensuing from the OECD 2015 Base Erosion and Profits Shifting (“BEPS”) Project along with its alignment with globally recognized Safe Harbour Rules.

     

    The revised OECD TP Guidelines 2017 (Issued in July 2017) aim to sturdily support& build the international consensus on application of arm’s length principle on cross-border transactions between associated enterprises; and to reduce the compliance / tax burden of MNEs by propagating a consistent mechanism across jurisdictions.

     

    The key changes have been tabulated below:

     

    Sl No.

    Topic

    Revised Guidelines

     

     

     

     

     

     

     

    ? Fresh guidance in conducting a functional analysis, especially

     

     

     

    around allocation of risks to the parties in a transaction.

     

    1

    Comparability

    ? Stress on risks being allocated to the parties undertaking the

     

    analysis

    risk irrespective the contractual allocation of risks.

     

     

     

     

    ? Risk ought to be allocated to the party with most control over

     

     

     

    the risk.

     

     

     

     

     

     

     

    ? Attribution of returns from intangibles to entities performing

     

     

     

    significant of intangibles to entities.

     

     

     

    ? Guidance on approach to deal with transfer pricing on hard to

     

    2

    Intangibles

    value intangibles (HTVI), people functions of development,

     

    enhancement,  maintenance,  protection  and  exploitation

     

     

     

     

     

    (DEMPE) of the intangibles.

     

     

     

    ? The revised UN TP Manual incorporated the above guidance on

     

     

     

    DEMPE functions (development, enhancement, maintenance,

     

     

     

    protection and Exploitation)

     

     

     

     

     

     

     

     

     

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    SBS Wiki

     

    www.sbsandco.com/wiki

     

     

     

     

     

     

     

    ? Situations in which a profit split is the most appropriate transfer

     

     

     

    pricing method

     

     

     

    ? How the profits need to be split and the several profit-splitting

     

     

     

    factors

     

    3

    Profit Split approaches

    ? Importance of the master file and local file components in

     

     

     

     

     

    splitting the profits

     

     

     

    ? The principal contributions to value creation by entities within

     

     

     

    the group and key group intangibles.

     

     

     

     

     

     

     

    ? Separate entity approach has been stressed upon.

     

     

     

    ? Taxing rights of the host country are not necessarily exhausted

     

    4

    Attribution of profits

    by ensuring an arm’s length compensation to the intermediary.

     

    to PE

    This is against the principles established in SC decision of

     

     

     

     

    Morgan Stanley (additional attribution is required for a PE even

     

     

     

    if the intermediary has been compensated on an arm’s length

     

     

     

    basis)

     

     

    Certainity on Dispute

    ? Safe Harbour – Bilateral and Multilateral to be agreed upon – i.e

     

    5

    application of fixed prices/ margins or specific transfer pricing

     

    resolution

     

    methods for a given class of transactions

     

     

     

     

     

     

     

     

    Changes to the TP Documentation landscape:

     

    BEPS Action Plan 13 emphasised three-tiered documentation structure consisting of Master File, Local File and CbC reporting. The revised Guidelines follow the objective of simplifying and standardizing rules in relation to maintenance of TP documentation across jurisdictions. It also targets to provide all the required and relevant information to revenue authorities for conducting effective TP audit proceedings.

     

    Three objectives of preparing and maintaining a Three tiered transfer pricing documentation, as follows:

     

    • To ensure that taxpayers give due weightage to transfer pricing requirements in establishing prices;

     

    • To provide tax authorities with robust information to enable to them to conduct informed risk assessment; and

     

    • To enable tax authorities to undertake thorough audit.

     

     

     

     

     

     

     

     

     

     

     

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    Revised OECD guidelines

     

     

    SBS Wiki                                                                                                                                                       www.sbsandco.com/wiki

     

    Concluding Remarks:

     

    The revised OECD guidelines have certainly taken a new shape and flavour as impacted by the BEPS action plans. The focus was mainly on the PE, Intangibles, Documentation and Comparability aspects of the TP analysis.

     

    Indian Tax authorities have already started incorporating the BEPS questions as part of their audit procedures and once the official notification of the templates and the disclosure requirements are notified, the real heat of the BEPS Impact on India would be felt.

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    In our country construction and infrastructure industry is one of the major sector employing over 9 million workers in the construction activity and this sector plays a pivotal role in the development and progress of the nation and its economy. The workers in this sector are mostly migrant in nature and vulnerable unorganised labour. The nature of work is also characterized by inherent risk to the life and limb of the workers. The work is casual nature and has a very temporary employer employee relationship for short durations. In most of cases, they work through contractors and sub-contractors and they do not have any direct relationship with the principal employer or owner of the project. The project construction works are normally associated with uncertain working hours, lack of basic amenities and inadequacy of welfare facilities. Keeping in view these conditions, the BOCWAct and BOCW Welfare Cess Act have been brought into place by the legislature.

     

    The BOCWA has defined building or other construction work as the construction, alternation, repairs,maintenance or demolition of or, in relation to, buildings,streets, roads, railways, tramways, airfields, irrigation,drainage, embankment and navigation works, floodcontrol works (including storm water drainage works),generation, transmission and distribution of power,water works (including channels for distribution ofwater), oil and gas installations, electric lines, ……………..but does not include

     

    any building or other construction work to whichthe provisions of the Factories Act, 1948 (63 of 1948), orthe Mines Act, 1952 (35 of 1952), apply.

     

    In view of the exclusion of construction work to which the provisions of the Factories Act, 1948 is applicable, the green field factories which are under construction have claimed that the BOCWA and Cess Act will not be applicable to them as the Factory Building plans are approved by the Director of Factories and the construction work is undertaken in accordance with the said approvals by the Director of Factories. Though the factory is under construction it has submitted itself to the control and supervision of the Director of Factories.

     

    These contentions were reached the Supreme Court and finally it is now a settled law that the factories during the period of construction are not qualified to be termed as ‘Factory’ and they are covered under BOCWA and Cess Act.

     

    Let us look at the rationale behind this decision. The Factories Act has defined a Factory as any premises including precincts thereof where ten or more workers are working with the aid of power in any part of which a manufacturing process is being carried on. The key issue in the definition is that there should be ‘manufacturing process’.

     

    The factories act has defined manufacturing process as any process for making, altering, repairing, ornamenting, finishing, packing, oiling, washing, cleaning, breaking up, demolishing, or otherwise treating or adapting anyarticle or substance with a view to its use, sale, transport, delivery or disposal… The construction of the factory is not falling within the definition of ‘manufacturing process’.

     

     

     

     

     

     

     

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    In addition to the requirement of carrying manufacturing process, to qualify as a factory, there is a requirement of number of workers and operations with the aid of power. The Act defined worker as a person employed in any manufacturing process or in cleaning any part of the machinery or premises used for a manufacturing process or in any other kind of work incidental to or connected with the manufacturing process.

     

    When there is no manufacturing process, there can be no worker covered under the Factories Act during the period of construction of a factory.

     

    The new factories during the period of construction do not have any ‘manufacturing process’ and also do not have any worker in accordance with the provisions of the factories act and hence the factory during the period of construction is not covered under Factories Act and it is not a factory till it commences ‘manufacturing process’.

     

    In view of the above, all the factories during the period of construction are required to be registered and BOCWA and also remit cess in accordance with the provisions of the BOCW Welfare Cess act.

     

    Now the question remind unanswered is whether cess is payable on the total cost of the project that is including the cost of the machinery in addition to cost of civil construction cost. The authorities implementing the BOCW WelfareCess act are insisting payment on the total project cost of the factory including the cost of the machinery etc.,

     

    In common parlance, installation of machinery is known as erection and commissioning and not construction. Now the future litigation is likely to be on these aspects with regard to the assessment of cess liability.

     

    In a matter relating to the welfare cess, the Supreme Court expressed its anguish with regard to collection of over Rs. 27,000 crores as cess and not utilising the same for the purpose for which it is collected under act. It also expressed its view that the money, which should have been spent on the welfare of the labourers, was being spent on administration and advertisements, while the workers are condemned to live miserable life. The bench noted that it was extremely disturbed to find that the poorer people are not getting any benefits from the welfare measure.

     

    The schemes implemented by A.P.Building & Other Construction Workers Welfare Board are: ( i ) Personal Accidental Death Relief, ( ii ) Permanent Disability Relief, ( iii) Natural Death Relief, ( iv) Maternity Benefit, (

    1. Temporary disability Relief (hospitalisation charges), ( vi) Funeral Expenses, ( vii) Marriage Gift, ( viii) Reimbursement of training in safety and skill development expenses, ( ix) Matching contribution towards Pension Scheme. (x) Vocational training to dependents. In its scheme the Welfare Board has extended support to unregistered workers also in case of accidental death and permanent disability.

     

    While the observations made by the apex court are very true, the establishments engaged in construction activity should take up the responsibility of registering the beneficiaries that is the construction workers and assist them to claim the benefits provided under different schemes by the Government under the BOCW Act.

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    Introduction: 

    All are aware that pursuant to the provisions of Section 248 of the Companies Act, 2013, notices have been received from the Registrar of Companies, by those companies which have not commenced its business or is not carrying on any business or operation for a period of two immediately preceding financial years and has not made any application within such period for obtaining the status of a dormant company under section 455, and responses were sought from such companies within 30 days, failing which the name of the said Company would be removed from the Register of Companies. 

    After giving reasonable time, the Registrar of Companies, have removed the names of the Companies, which have not responded to their notice, or which have not updated their returns with the ROC, and accordingly the status of the said companies stands changed to “Struck-off”, in the Master Data of the said Companies, as appearing in the MCA Portal. 

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