Latest Blogs from SBS and Company LLP



    Banks require that a security be offered up as collateral on the account in exchange for cash. This security can be a tangible asset, such as stock in hand, raw materials or some other commodity. The credit limit extended on the cash credit account is normally a percentage of the value of the security offered. Interest is charged not on the sanctioned amount but on the utilized amount.


    ?Corporate Term Loan:


    A loan from a bank for a specific amount that has a specified repayment schedule and a floating interest rate. Term loans almost always mature between one and 10 years.


    Banks tend to classify into two:






    ?Intermediate-term loans usually run less than three years, and are generally repaid in monthly instalments from a business's cash flow.


    ?Long-termloans can run for as long as 10 or 20 years and include additional requirements such as collateral and limits on the amount of additional financial commitments the business may take on.


    This helps the company in funding


    ?Ongoingbusiness expansion,


    ?Repayinghigh cost debt,

    ?Technology up gradation,


    ?Implementing early Retirement Scheme

    ?Supplementing working capital


    The Corporate term loan has also structured under FCNR(B) scheme as well, with the option of switching the currency denomination at the end of the interest periods.




    ?Ofglobalinterest rates trends vis-à-vis domestic rates to minimize the debt cost.


    ?Maycarryfixed/floating rates





    8 | P a g e


    SBS Interns' Digest                                                                                                                




    Trade finance signifies financing for trade, and it concerns both domestic and international trade transactions. A trade transaction requires a seller of goods and services as well as a buyer. Various intermediaries such as banks or financial institutions can facilitate these transactions by financing the trade.


    Facilities provided by Bank:


    ?Intermediaries – banks can act as intermediaries for documents & funds flow in international transactions as transfer through banks is more secure.


    ?Pre-shipment loans – this is working capital for purchasing raw materials, processing & packaging of export commodities. Most common form is packing credit where the exporter gets concessional interest rates.


    ?Post-shipment loans – these loans help exporters bridge their funding requirements when they export on deferred payment basis i.e. credit.




    • Bill Discounting o Forfaiting


    o Factoring

    o Bill discounting & factoring can also happen for domestic transactions.

    o Bank has recourse to the seller since in case of non-payment by the buyer after credit period expiration; the seller must compensate the bank.


    o Bill discounting is always with recourse.

    o In factoring, a bank can discount bills with/without recourse & even with partial recourse. This is called Assignment of Receivables.


    ?International trade payment mechanisms:


    o Letter of credit


    o Cash in advance – buyer pays seller before shipment of goods.

    • Open account or credit – this means that payment is made on an agreed upon future date. This is very risky for a seller unless he has very strong relationship with the buyer or the buyer has excellent credit rating. There are no guarantees & collecting payment often becomes a tedious



    • Cash Management Services (CMS) – It has no credit risk for the bank. It is a pure administrative service for the corporate. The client maintains only one account with the bank. Cash management encompasses receivables management, payables management & liquidity management. Banks are using better technologies for cash management by connecting to ERP systems.






    9 | P a g e

    Types of Bank Finance in India



    SBS Interns' Digest                                                                                                                


    ?Letterof Credit:


    A letter of credit is an also called Documentary Credit (DC). The bank lends its guarantee of payment to the buyer. The bank also guarantees payment to the seller provided he ships the goods & complies with the terms of agreement. Here seller takes credit risk on the bank instead of buyer.


    Types of Letter of Credit:




    • Recoverable letter of credit o Standby Letter of credit


    o Irrecoverable letter of credit




    • Confirmed letter of credit o Unconfirmed letter of credit o Back-to-Back letter of credit o Clean letter of credit


    ?Structured Finance:


    The Financing techniques tailored to special needs or constraints of issuers or investors& Solving problems that are not easily solved by conventional financing techniques.


    It is a sector of finance to transfer risk by using complex legal and corporate entities.


    The essence of structured finance activities is the pooling of economic assets (e.g. loans, bonds, mortgages) and subsequent issuance of a prioritized capital structure of claims, known as tranches, against these collateral pools.






    ?Underwriting/Syndication of corporate loans & project loans ?Secondarypurchase and sale of loan products ?Mergers


    ?Hedgingofcurrency & interest rate exposures


    In India, the Hotel & Restaurant Approval & Classification Committee (HRACC), a division under Ministry of Tourism is entrusted with the activity of classification of the Hotels into either Star Category Hotels (5 Star Deluxe, 5 Star, 4 Star, 3 Star, 2 Star & 1 Star) or Heritage Category Hotels (Heritage Grand, Heritage Classic & Heritage Basic) by inspecting & assessing the hotels based on the facilities and services offered. 

    As per ‘Guidelines for Classification of Hotels’ issued by Ministry of Tourism (Hotel &Restaurant Division), ‘Paid Transportation on call’ is compulsory in hotels of 3 Star & above and Heritage Hotels. However, in order to provide the customer a greater luxury and to stay ahead in the competition, even hotels below 3 star rating are also providing transportation on call that is facility of making the cab available on call.

    Country By Country Reporting - Action 13 - BEPS Project

    Action 13 of the action plan on base erosion and profit shifting (BEPS action plan, OECD, 2013) requires the development of “rules regarding transfer pricing documentation to enhance transparency for tax administration, taking into consideration the compliance costs for business. The rules to be developed will include a requirement that MNEs provide all relevant governments with needed information on their global allocation of the income, economic activity and taxes paid among countries according to a common template”.

    In response to this requirement, a three-tiered standardised approach to transfer pricing documentation has been developed.

    First, the guidance on transfer pricing documentation requires multinational enterprises (mne’s) to provide tax administrations with high-level information regarding their global business operations and transfer pricing policies in a “master file” that is to be available to all relevant tax administrations. A brief checklist of info to be filed/maintained is provided in the later part of the article.

    Second, it requires that detailed transactional transfer pricing documentation be provided in a “local file” specific to each country, identifying material related party transactions, the amounts involved in those transactions, and the company’s analysis of the transfer pricing determinations they have made with regard to those transactions. Local files are basically the TP documentations maintained as per the local tax laws (rule 10D currently in India)

    Third, large mne’s are required to file a country-by-country report that will provide annually and for each tax jurisdiction in which they do business the amount of revenue, profit before income tax and income tax paid and accrued. It also requires mne’s to report their number of employees, stated capital, retained earnings and tangible assets in each tax jurisdiction. Finally, it requires mne’s to identify each entity within the group doing business in a particular tax jurisdiction and to provide an indication of the business activities each entity engages in. This is basically presenting and populating the data in the following tables:

    Taken together, these three documents (master file, local file and country-by-country report) will require taxpayers to articulate consistent transfer pricing positions and will provide tax administrations with useful information to assess transfer pricing risks, make determinations about where audit resources can most effectively be deployed, and, in the event audits are called for, provide information to commence and target audit enquiries. This information should make it easier for tax administrations to identify whether companies have engaged in transfer pricing and other practices that have the effect of artificially shifting substantial amounts of income into tax-advantaged environments.

    Countries participating in the BEPS project agree that these new reporting provisions, and the transparency they will encourage, will contribute to the objective of understanding, controlling, and tackling BEPS behaviours.

    The specific content of the various documents reflects an effort to balance tax administration information needs, concerns about inappropriate use of the information, and the compliance costs and burdens imposed on business. Some countries would strike that balance in a different way by requiring reporting in the country-by-country report of additional transactional data (beyond that available in the master file and local file for transactions of entities operating in their jurisdictions) regarding related party interest payments, royalty payments and especially related party service fees. Countries expressing this view are primarily those from emerging markets (argentina, brazil, people’s republic of china, colombia, india, mexico, south africa, and turkey) who state they need such information to perform risk assessment and who find it challenging to obtain information on the global operations of an mne group headquartered elsewhere. Other countries expressed support for the way in which the balance has been struck in this document. Taking all these views into account, it is mandated that countries participating in the BEPS project will carefully review the implementation of these new standards and will reassess no later than the end of 2020 whether modifications to the content of these reports should be made to require reporting of additional or different data.

    Consistent and effective implementation of the transfer pricing documentation standards and in particular of the country-by-country report is essential. Therefore, countries participating in the OECD/G20 BEPS project agreed on the core elements of the implementation of transfer pricing documentation and country-by-country reporting. This agreement calls for the master file and the local file to be delivered by mne’s directly to local tax administrations. Country-by-country reports should be


    filed in the jurisdiction of tax residence of the ultimate parent entity and shared between jurisdictions through automatic exchange of information, pursuant to government-to-government mechanisms such as the multilateral convention on mutual administrative assistance in tax matters, bilateral tax treaties or tax information exchange agreements (TIEAs). In limited circumstances, secondary mechanisms, including local filing can be used as a backup.

    Threshold limit for applicability: These new country-by-country reporting requirements are to be implemented for fiscal years beginning on or after 1 january 2016 and apply, subject to the 2020 review, to mnes with annual consolidated group revenue equal to or exceeding euro 750 million. It is acknowledged that some jurisdictions may need time to follow their particular domestic legislative process in order to make necessary adjustments to the law.

    In order to facilitate the implementation of the new reporting standards, an implementation package has been developed consisting of model legislation which could be used by countries to require mnc groups to file the country-by-country report and competent authority agreements that are to be used to facilitate implementation of the exchange of those reports among tax administrations. As a next step, it is intended that an xml schema and a related user guide will be developed with a view to accommodating the electronic exchange of country-by-country reports.

    It is recognised that the need for more effective dispute resolution may increase as a result of the enhanced risk assessment capability following the adoption and implementation of a country-by-country reporting requirement. This need has been addressed when designing government-to-government mechanisms to be used to facilitate the automatic exchange of country-by-country reports.

    Jurisdictions endeavour to introduce, as necessary, domestic legislation in a timely manner. They are also encouraged to expand the coverage of their international agreements for exchange of information. Mechanisms will be developed to monitor jurisdictions’ compliance with their commitments and to monitor the effectiveness of the filing and dissemination mechanisms. The outcomes of this monitoring will be taken into consideration in the 2020 review.

    Changes expected in Budget 2016:

    The Indian government in the upcoming budget in February end would be announcing the changes in the Indian TP regulations to be on par with the global updates in realtion to the BEPS project and CBCR reporting. The Indian counterparts of the global MNE’s should be maintaining the TP documentations (local files) in line with the global reporting’s as part of the CBCR or global TP documentations to avoid inconsistencies. With growing transparency and exchange of information’s it would be a very interesting period to see as to how the litigation statistics would respond.

    Some Basic Questions to ponder upon:


    1. When is the first year companies will be expected to file?


    The latest action 13 report suggests that countries participating in the OECDBEPS project will require groups to file in 201 7 in respect of FY16 results.


    1. What will happen if the ultimate parent company is located in a country which has not implemented CBC reporting?


    The OECD agreement builds in a response for situations where a company’s parent jurisdiction does not implement (e.g., the parent is in the Cayman Islands), which is direct filing by the company in every country or possibly the substitution of a lower tier entity to serve as the parent for CBC collection and exchange purposes.


    1. What does the OECD mean by the term multinational group? Is it true that companies will not need to file if they are part of a privately owned group?


    Action 13 refers to multinational enterprises (mnes) though it does not define mnes. Guidelines for multinational enterprises OECD201 1 gives the following description:


    “a precise definition of multinational enterprises is not required for the purposes of the guidelines. These enterprises operate in all sectors of the economy. They usually comprise companies or other entities established in more than one country and so linked that they may coordinate their operations in various ways. While one or more of these entities may be able to exercise a significant influence over the activities of others, their degree of autonomy within the enterprise may vary widely from one multinational enterprise to another. Ownership may be private, state or mixed”


    The latest implementation guidance provides that smaller and medium size enterprises (smes) with annual consolidated revenue of less than€750 million in the preceding year will not be required to file a CBC report. It states that no special industry exemptions should be provided, no general exemption for investment funds should be provided, and no exemption for non-corporate entities or non-public corporate entities should be provided.


    Accordingly, unless a group falls within the sme definitionall groups holding overseas operations that form part of their consolidation will need to file, regardless of ownership structure.

    1. Who is the reporting mne? In a large multinational group, it is possible that consolidated accounts are prepared for financial investors at more than one level? For example, group Bis a 65% subsidiary of company A with the remaining 35% of shares being publically held and prepares consolidated financial statements.

    Action 13 states that: ”a reporting mne is the ultimate parent entity of an mne group.”. In the case outlined above, in our view, only company A would have to submit the CBC report. The notes on the master file suggest that it would be possible to present the data on a divisional basis where for instance the business divisions operate independently. This courtesy does not seem to be extended to CBC reporting. However, if it would aid understanding and follow up, it might make sense to file addendum CBC reports broken down on divisional lines.

    1. What do companies need to consider in terms of preparing for real CBC reporting and master file/ local file?

    Simply giving the OECD list of data points to internal audit and asking them to confirm that they can provide the data is likely to result in a rather mechanical result without the tax impact being considered. This is really something that should be done in cooperation between tax and accounting people.

    Companies should consider whether they can get all the information e.g., independent subcontractors, or how they would be translating their figures from local to group currency in case they would report on local GAAP..

    Consistency should be kept in mind here both in terms of consistency between the CBC report, master file and local file and also that the underlying TP documentation is consistent to "the message" in the CBC report delivered to the tax authorities. The outcome of a risk assessment analysis performed by the tax authorities based on the CBC report might be linked to other actions or information (hybrids/exchange of information - rulings etc).

    1. Confidentiality?

    Action 13 requires tax authorities to ensure confidentiality of the report be maintained. However, mnes should prepare that certain aspects could become public. In certain countries, there is political agitation to make the documentation public. In the UK, both the labour and conservative party manifestos open the possibility of making the information public. The likelihood is high that questions from tax authorities and ensuing controversy will get media attention.

    Master File Details:

    Organization structure

    Business description





    Financial and tax


    Structure chart:

    Important drivers

    of business profit

    Overall strategy




    for the group

    Annual consolidated

    financial statements

    u Legal ownership

    u Geographic


    Supply chain of:

    List of important

    Identification of

    financing entities

    description of

    existing unilateral

    Advance Pricing


    (APAs) and other

    tax rulings

    ? 5largest products/

    services by turnover

    ? Products/services

    generating more

    than 5% of turnover

    intangibles and

    legal owners


    Main geographic

    markets of above


    List of important



    Details of financial

    transfer pricing




    List and brief

    description of

    important service


    R&D and intangible

    transfer pricing





    Functional analysis

    of principal

    contributions to

    value creation by

    individual entities

    Details of

    important transfers







    divestitures during

    fiscal year





    This article is contributed by Partners of SBS and Company LLP – Chartered Accountant Company You can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.

    Restraints On Termination Of Employment

    Resource Inputs Limited

    Employment relations in India are governed by Labour Laws such as Industrial Disputes Act, Industrial Employment (Standing Orders) Act, Trade Union Act and also Constitution of India and collective and individual contracts and judicial precedents. Most of the labour and employment laws primarily apply to ‘workman’ as defined in the Industrial Disputes Act. There are around 165 Labour Legislations in India of which 55 central legislations while 110 are state enacted legislations. Employees who are not workman as per the definition of workman in the Industrial Disputes Act, the employer-employee relations are governed by contract of employment. Generally a written contract with an employee is in the form of letter of appointment. These employees are governed by The Indian Contract Act 1872 and Specific Relief Act.

    The Labour Laws with a view to protect the employment and prevent exploitation brought-in certain restrictions under some circumstances in different Labour Laws besides defining the procedures in dealing with acts of misconducts, if any, committed by the workmen. The Model Standing Orders have defined the acts which constitute misconduct and the punishments that can be imposed upon workmen on finding him guilty by following the defined procedure. The Industrial Disputes Act has imposed restrictions even after following the procedures laid down in Standing Order under certain special circumstances and protected workmen.

    In this paper an attempt is made to analyze the provision under Employee State Insurance Act, Maternity Benefit Act and Industrial Disputes Act with regard to the restrictions imposed on the employer on dismissal or discharge of a workman.

    ESI Act

    The employees with gross monthly wage of Rs. 15,000/- and below, working in factories (other than seasonal factories) and shops and establishments with ten or more employees in the notified areas are covered under Employee State Insurance Act. The educational institutions, hospitals and construction workers are also covered under the Act. Employees who are not covered under ESI Act are covered under Employee Compensation Act and Maternity Benefit Act. Some of the benefits provided under the ESI Act are ‘Sickness Benefit’ ‘Maternity Benefit’ and ‘Disablement benefit’.

    In accordance with the Section 73 of the ESI Act employer shall not dismiss, discharge or reduce or otherwise punish an employee during the period when he / she is in receipt of sickness benefit or maternity benefit and also during the period in receipt of disablement benefit for temporary disablement or is under medical treatment for sickness or is absent from work as a result of certified illness arising out of pregnancy or confinement. During the said period no notice of dismissal or discharge or reduction shall be served on an employee. Thus there is statutory embargo on the employer not to dismiss or punish an employee during the period of above mentioned circumstances.


    The Bombay High Court in the matter of Divisional Controller, Maharastra State RTC Vs SherkhanChhotekhan [2004 LLR 600] held that the dismissal of an employee, as covered under the ESI Act during receipt of his sickness benefit, would be void and the employee will be entitled to reinstatement with other benefits.

    The Bombay HC in the matter of RamchandraSitaramKale(deceased) Vs Maharashra State Road Transport Corporation [2009 (120) FLR 100] held that in case where a notice of dismissal or discharge or reduction is given during the specified period of illness, the same shall remain in abeyance because the same is not valid nor the same can be made operative during that period.

    The Karnataka High Court in the matter between Guest Keen Williams Ltd Vs PO Labour Court held that the bar in section 73 of the Act only requires the employer not to dismiss or terminate during the period of sickness benefit period. However, in the case of voluntary abandonment, this will not be applicable.

    If any employer contravenes the section 73, it would not only render the dismissal or discharge invalid but also expose the management itself to the peril of prosecution under section 85 of the Act.

    The Kerala High Court in the matter of Kerala State Co-Operative Coir Marketing Federation Limited VsSreekumar [2002, III LLJ 101] examined the question whether the ESI Court is competent to consider the validity of an order of dismissal of an employee on the ground of violation of section 73 and held that the ESI Court is not competent and it can only take penal action against the employer, if proved, violation of section 73.

    The workmen has to take up his claim for reinstatement only under Industrial Disputes Act and not under ESI Act.

    Maternity Benefit Act

    In accordance with the section 12 of Maternity Benefit Act no employer shall dismiss or discharge a women employee who is absent from duties under the provisions of this act and also any time during pregnancy. Women employee will be entitled to maternity benefit under Act on working a minimum of 80 days in the twelve months preceding the date of expected delivery. Women employees engaged directly or through any agency or contractor is also covered under the Act.

    The Supreme Court in the matter of Municipal Corporation of Delhi Vs Female Workers (Muster Roll) [AIR 2000 SC 1274] held that the provisions of the Maternity Benefit Act entitle maternity leave even to women engaged on casual basis or on muster roll basis on daily wages and not only those in regular employment.

    Supreme Court in the matter of NeeraMathurVs LIC of India ruled in favour of the pregnant employees. In the instant case the employee while on probation she applied for maternity leave and the company discharged her from service on reasons of deliberately withheld the fact of being pregnant at the time of filling up a declaration form prior to being appointed. The court ordered reinstatement.


    Industrial Disputes Act

    Section 33 of the Industrial Disputes Act imposes restrictions and a temporary ban on the employer’s right to alter the conditions of service of a workman or to punish him by way of discharge or dismissal while an industrial dispute is pending before conciliation authority or Labour Court or Industrial Tribunal or Arbitration. The employer has a responsibility to seek prior approval of the authority before whom the disputes is pending for effecting any change in conditions of service or

    for discharging or dismissing the workman in respect of any matter or misconduct that is connected with the dispute u/s. 33(1) and in case of misconduct not connected with the dispute, the employer can pass an order of discharge ordismissal, but he should seek approval subsequently u/s. 33(2)(b) and also make payment of wages for one month.

    Thus for imposing a penalty of dismissal or discharge on a workmen for his acts of misconduct which is not connected with the dispute pending before the authority after conducting enquiry and establishing the misconduct in according with the Standing Orders of the industrial establishment, the employer is required to make an application for approval after passing the orders under Sec 33(2)(b) of the Act which is a major constraint to the employer in addition to payment of one month wages to a workmen who has committed misconduct.

    The employer is required to do all the three acts simultaneously, that is the discharge or dismissal of the workman, making payment of one month wages and making application for approval for discharge or dismissal of the workman. The Supreme Court in the matter of Straw Board Manufacturing Co Ltd VsGobind, [1962 I LLJ 420] held that employer shall ensure that all the three actions shall be simultaneous and shall form part of the same transaction failing which the application runs the risk of being rejected.

    The Supreme Court in the matter of Tata Steel VsModak [1966 AIR 380] and Jaipur ZillaSahakariBhoomiVikas Bank Ltd Vs. Ram Gopal Sharma [2002 (92) FLR 667] held that in case of misconduct not connected with a pending dispute u/s 33(2), the employer may first discharge or dismiss the workman after domestic enquiry and then can seek approval of the concerned industrial court. If the approval is granted, the discharge or dismissal shall take effect from the date of the order. In case of refusal of approval application, then the workman is deemed to be in continuous service.

    However the jurisdiction of the Tribunal on the application made for approval after dismissal or discharge of a workmen for a misconduct not connected with the dispute before it is limited to:

    • Whether a proper domestic enquiry was conducted in accordance with the Standing Orders by observing the principles of natural justice.
    • Whether a prima facie case for dismissal based on the evidence on record is made out
    • Whether the employer had arrived at bona fide conclusion that the workman was guilty of the misconduct.
    • Whether the dismissal or discharge was not intended to victimize the workman.


    and the Tribunal does not sit as a Court of Appeal re-appreciating the evidence and it only examine the proceedings and finding of the enquiry to ascertain whether prima facie case had been made out or not. In the matter of discharge or dismissal connected with the dispute pending before the Tribunal or in the Conciliation proceedings, the Supreme Court in the matter of Lord Krishna Textile Mills Vs its workmen [1961 AIR 860] held that in case of misconduct connected with pending dispute, u/s 33(1), the discharge or dismissal shall take effect only on the approval granted by the concerned Industrial Court. The Supreme Court in the matter of Ram LakhanVs Presiding Officer [2001(I) LLJ 449] also held that during the pendency of management’s application for permission to dismiss the workman, the company shall pay the subsistence allowance if placed under suspension.

    The Act imposed restrictions on discharge or dismissal of a protected workman during pendency of an industrial dispute. The Karnataka High Court in the matter of Bagalkot Cement Co Vs The Management of Kanoria Industrial Ltd [2006 LLR 674] held that dismissal of protected workman, without seeking permission will be violation of section 33(3) of the ID Act.

    All the registered trade union office bearers will not become protected workmen automatically. Only such of those office bearers whose names have been notified by the registered trade union on or before 30th April every year and approved by the Management will alone fall under the category of protected workman. The total number of protected workman shall be restricted to one percent of the total number of workman subject to a minimum of five and maximum of one hundred. If the number of registered trade unions are more than one, the protected workman shall be based on the membership of the each registered trade union. The period of recognition of the workman as a protected workman will be valid for twelve months only.

    Thus it is essential to the employers to understand the restrictions imposed on discharge or dismissal by different legislations under certain special circumstances before taking a decision even in disciplinary matters.

    This article is contributed by Partners of SBS and Company LLP – Chartered Accountant Company You can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.

    Digital Signature Decrypted - E Lock

    What are digital signatures?

    Digital Signatures are based on Public Key Technology that uses asymmetric cryptography. Each person's identity is related to a key pair - a private key and a public key. These keys are nothing but mathematical codes generated on your computer.


    The arrival of digital signatures, and their legalization by Governments all over the world, has marked a new revolution in the world of electronic transactions. Digital Signatures will make business transactions over the Internet easier, and more reliable for businesses and consumers. Paper documents are steadily replaced by electronic documents and as other digital assets such as messages, transactions, digital content, and software proliferate across every type of organization, new types of controls are needed. Electronic versions of traditional signatures and watermarks provide some benefits but lack the security properties to play a role in compliance reporting and support legal challenges. As organizations adopt a more service oriented approach to business processes and integrate with cloud-based resources, they need provably reliable ways to validate the authenticity and integrity of these electronic items; more specifically, they need to attest that these items have not been changed maliciously since they were created. Furthermore, when it comes to digital transactions, organizations need to establish a means of non-repudiation—the ability to hold parties accountable for the transactions they execute. In the end, a legal contract executed online, for example, should be as ironclad as one executed in person before witnesses. To meet these goals, organizations use digital signatures.