the new tax paradigm – time to act · the new tax paradigm – time to act 2016 kpmg asia pacific...

The new tax paradigm – Time to act2016 KPMG Asia Pacific Tax Summit

JW Marriott Hotel, China Central Place, Beijing9-12 May 2016

KPMG Asia Pacific Tax Centre

India - Doing business amid rapid growth and changeGirish Vanvari, Head of Tax, KPMG in India

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Document Classification: KPMG Confidential

Global Economy

Navigating the global environmentNeed for increased government spending, drive investment and consumption

Global Trade Weakness

Impact of falling commodity

prices

Pervasive currency pressure

Tightening US monetary policy

SlowingChina

Higher External Debt



IndianEconomy



Indian Economic Scenario

Growth forecast

• Indian economy poised to grow at 7.5% for FY 17

• India about to save INR 2 trillion on account of falling crude oil prices, thereby lowering the trade deficit

• India’s forex reserves stood all time high at approx. USD 365bn at the end of 18th

March, 2016

• Indian Rupee – a top performing currency with a devaluation of approx. 6% in FY 16

• FDI Equity in India increased by approx. 37% after launch of Make in India

• Revival of Investment cycle in the economy

Decline in production of capital and consumer goods

Private investment continues to remain weak

High NPA’s –Banks reluctant to extend credit



Cyclical rebound underway in 2016

• After two consecutive years of bad monsoon and predictions of favorable monsoon, growth expected to rebound

• Corporate balance sheets are on the mend

• Power companies look more solvent as state governments take on their debts

• Lending should rebound in 2016 as banks get more capital

• Big driver to growth will likely be private consumption– led by One Rank One Pension Scheme (OROP) and Seventh Pay Commission

• Steady rate cuts by RBI cannot be ruled out in the coming months, will likely help boost market sentiments

• Inflation likely to remain in the comfort zone unless oil price surge

• Start-ups, digitalization to play an important role to India’s growth story in 2016



Downside risks however remain..

Further fall in exports expected if global growth remains weak

Private sector external debt burden (USD 189 billion) alarming, as dollar funding cost continues to rise for corporates

Sharper than expected slowdown in China

Delayed turnaround in corporate profitability may hit the earnings and further push food inflation

Any major geopolitical issue may lead to volatility in the markets

Sharp slowdown in global growth leading to disinflationary pressures



India a look in the mirror

Flagship programs and regulatory changes opening opportunities

Focus on e-governance and ease of doing business

Competitive federalism driving States to perform

Red carpet for IndianStart ups

Stable tax regime – A refrain from retrospective changes

Alignment withGlobal Tax Practices

Black Money Act – yet to realize its expected potential



Big ticket reforms building momentum ‘Minimum Government Maximum Governance’

Evolved tax administrators to handle complex issues

Financial inclusion Direct

benefit transfer

Railway reforms

GST

Power sector

reforms

‘Make in India’

FTP

Land acquisition

Business easy

reforms

‘Digital India’

Agricultural reforms

Bankruptcy code

• India’s rank rose to 130 from 134 (revised 2015 rankings) in the World Bank’s Ease of Doing Business Rankings 2016.

• India moved 16 positions up (from 71 to 55) in the WEF’s Global Competitive Index

Competitive federalism seems to be driving states to perform better

Rajasthan, Maharashtra appear to be driving labor reforms at the state level, other states are expected to follow course

Unveiling of the bankruptcy code to catalyze the growth of ‘start-ups’

Proposals expected to enact a unified Indian Finance Code and constitution of a Monetary Policy Committee welcoming

FDI regime has been further liberalized in 15 sectors, steering more proposals under the automatic route

Is the GST bill likely to get passed?

Retail corruption expected to be addressed by fine-tuning the Prevention of Corruption Act

Common approach to infrastructure regulation – new draft on the Regulatory Reform bill

Seven-pronged revamp plan for public sector banks

Reforms under way – liberalisation of External Commercial Borrowings (ECB), revised norms for Initial Public Offerings (IPOs) and listing of the bourses, Real Estate bill, National Common Market for agriculture products, restructuring of the power distribution companies,

kerosene subsidy reform.



Indian Tax Trends



Indian Tax environment

Uncertain Litigative(long-drawn)

Aggressive



Tax risks – a threat to business

Risk of non-compliance

Financial penalties..interest/penalties

Litigationrisk

Cash flowrisk

Risk of prosecution

Reputational risk –trial by media



The direction aheadGovernment taking efforts to address the long standing tax issues

• From Vodafone, Cairn, Shell, Cadbury tax disputes to MAT taxation on FIIs

• AP Shah Committee

• Eeswar Committee

• MAT Circular

• Share premium issue

The Governments is intending to build investor confidence and have a predictable and stable tax regime



Adopting a pro-tax payer approach in policy makingKey Initiatives taken by the Government

• Retrospective amendments to be discontinued

• Progressive reduction in corporate tax rate over the four year from 30% to 25%

• LTCG tax rate of 10 percent for shares of Unlisted closely held private companies, 3 to years

• ARCs and Securitization Trust – pass through taxation

• Direct Tax Dispute Resolution Scheme proposed – to reduce litigation

Key points to watch out for:

• Clarity on taxation of indirect Transfers

• Clarity on the India – Mauritius Treaty

Sincere Attempts to build investors confidence and moving towards a stable tax regime



Aligning to global tax practicesKey Initiatives taken by the Government

• Implementation of select BEPS Action Points :

- Action Point 1 – Equalization levy @ 6% on specified services provided by non residents who do not have a PE in India.

- Action Point 13 - Three tier TP documentation: Introduction of country by country reporting

• Introduction of POEM :

- Draft guiding principles for determination of POEM issued by CBDT

• Implementation of General Anti Avoidance Rules (GAAR) w.e.f 1st April, 2017

• Adopting Advanced Pricing Agreements and Mutual Agreement Procedures in Transfer Pricing

Key points to watch out for:

• Final guidelines on principles for determination of POEM in India

• Guidelines on manner of implementation of GAAR

• Regulations on local files as required under Action Point 13 of BEPS Action points

Mindful implementation could be the Key for smooth transition to Global Tax practices



Start-Ups – The tax pushKey Initiatives taken by the Government

• 100% deduction of profits for 3 out of 5 years for start ups incorporated upto 31 March 2019

• Minimum Alternative Tax continue to apply

• Concessional Patent Box regime proposed to make India R&D hub

• Capital gains not to be taxed if invested in notified funds limit of Rs. 50 lacs

• Amendment in section 54GB: Capital gains not to be taxed in case of individuals /HUFs transferring their long term capital asset (residential property) and investing in eligible start ups upto 31 March 2019



Manufacturing – The tax push Key Tax Initiatives taken by the Government

• Promotion by the government of sector specific as well as country specific Industrial Parks and SEZ’s

• Sector specific and area based initiative offered by the Government

• Investment Allowance at 15% allowed by the Government to promote investment in new plant and machinery required by the manufacturing units

• Higher Weighted Deductions of 200% of the expenditure incurred on in-house research and development

• State specific tax incentives also available to promote setting up of Industrial units in the designated states



Other tax trends to watch out forGeneral tax trends

• Tax morality – need for simplified holding structure

• Integration of tax function with Business Strategy

• Use of Data Analytics to prevent tax leakages

• Convergence of IND AS and ICDS

• More and more Advance Pricing Agreements

• Mutual Agreement Procedures and future of AAR’s

• DRP Perspective

• Settlement Commission to be more effective?

• Tax Administrative Reforms Commission recommendation

• Is AMP an international transaction – Suzuki, Sony bright light test

• Delhi High Court case – a reasonable business purpose test?

• Cyprus notification – WRIT challenging quashed

• Corporate guarantee issue



Managing Tax Risk



Managing tax risks – risk profile of tax function has changedManaging internal environment

• Resources with right skills …… keep investing in them

• Clear tax governance policy

• Understand business …… partner with business

• Compliances to be on auto mode

• Use technology – ERP , litigation management systems, etc.

• Communication is key – nobody likes surprises

• Tax at Board level – prepare how they think and not as head of tax

• Review at regular intervals

• Change approach to ‘tax planning’ ……… smell test

• Prepare for changes in business/regulations

• Documentation



Managing tax risks – risk profile of tax function has changedManaging external environment

• Be practical …. Understand the mindset of tax administrators

• Alternate Dispute resolutions – APA, Advance Rulings

• Influencing

• Never ever submit incorrect facts …. Not even inadvertently

• Prepare in advance

the new tax paradigm – time to act · the new tax paradigm – time to act 2016 kpmg asia pacific...

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