Latest Blogs from SBS and Company LLP

    There were many audits conducted by the service tax authorities in and around Hyderabad during the last month on hotels, bars and restaurants. One of the common audit observation is the applicability of service tax on license fee paid to Government of Telangana to obtain license to sell alcohol in their hotels, bars and restaurants. The said applicability is pursued from the angle of reverse charge mechanism in light of the changes made to Finance Act, 1994 vide the Finance Act, 2015. We shall try to understand the changes brought in through Finance Act, 2015 and whether service tax has to be paid on such amounts paid to Government of Telangana.

     

    Initially, when negative list of taxation has been introduced, all the services provided by Government or Local Authority except certain notified services were covered under the ambit of negative list. One of such exception is the support services provided to business entities. That is to say support services provided by Government or Local Authority to business entities is subjected to service tax. Further, the definition of support services was provided vide Section 65B(49) as ‘means infrastructural, operational, administrative, logistic, marketing or any other support of any kind comprising functions that entities carry out in ordinary course of operations themselves but may obtain as services by outsourcing from others for any reason whatsoever and shall include advertisement and promotion, construction or works contract, renting of immovable property, security, testing and analysis’.

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    Finance Act 2016 has introduced Equalization Levy w.e.f 01-06-2016 on specified services provided by non-resident not having Permanent Establishment (here in after referred as Specified Non Resident - SPN) in India. It is levied @6% on the amount paid to SPN.

     

    The levy refers to B2B transactions and not B2C transactions. This new levy introduced in line with the OECD BEPS action plan to tax e-commerce transactions.

     

    The services covered under the levy so far are related to online advertisement, any provision for digital advertisement space or facility or service for online advertisement or any other service as may be notified by the Central Government.

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    Presently, the Institute of Chartered Accountants of India (ICAI) has issued 39 Indian Accounting Standards (Ind AS) which have been notified under the Companies (Indian Accounting Standards) Rules, 2015 (“Ind AS Rules”), of the Companies Act, 2013. The Rule specifies the Indian Accounting Standards (Ind AS) applicable to certainclass of companies and set out the dates of applicability.

     

    India has chosen a path of International Financial Reporting Standards (IFRS) convergence rather than adoption. Hence, Ind AS is primarily based on the IFRS issued by the International Accounting Standards Board (IASB).

     

    Applicability of Ind AS As per the notification released by the Ministry of Corporate Affairs (MCA) on 16

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    RBI has issued ECB regulations viz., Foreign Exchange Management (Borrowing or Lending in Foreign Exchange)Regulations, 2000, Notification No. FEMA 3/ 2000-RB,dated May 3, 2000 read with Sec.6(3) of FEMA Act,1999

     

    Indian companies are allowed to access funds from abroad in the following Methods:

    ECB

    FCCBs

    Preference Shares/Debentures

    FCEB

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    Indian Tax environment has been rapidly changing to absorb the global changes and the need to curb the tax avoidance and restrict the black money, which have been the primary objectives of the government. The recent developments provide us with a glimpse of India’s treaty policy to prevent double non-taxation, curb revenue loss and check the menace of black money through automatic exchange of information. The following is a summary of the recent India- DTAA developments:

     

    India – Singapore:

     

    ØResident based to Source based: The India-Singapore DTAA at present provides for residence based taxation of capital gains of shares in a company. The Third Protocol amends the DTAA with effect from 1st April, 2017 to provide for source based taxation of capital gains arising on transfer of shares in a company. This will curb revenue loss, prevent double non-taxation and streamline the flow of investments.

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