Office no 2A, Gangotri Complex, 927, Synagague Street, Camp
July 8, 2021
July 8, 2021
July 2, 2021
The company has more than 60 years of experience in the development and production of automotive components. It has affiliated companies in Italy, USA, Mexico, Brazil, China and India, and sells products to more than 70 countries. Its markets include industrial vehicles, buses, trains, agriculture and construction machinery, boats, motorcycles and cars.
The group was expanding its operations in Brazil, China, India, Mexico and was seeking local firms to ensure compliance with local laws and to audit the subsidiary financial statements for consolidation purposes.
DOGA Group’s management team was unhappy with the performance of the local accounting firms they were using at the time. They discussed their needs with Kreston Spanish member firm Kreston Iberaudit which the company already used for other services. Kreston Iberaudit explained the advantages of using the Kreston Global network, and DOGA subsequently began working with Kreston Partnership in Brazil. They were so pleased with its work that they appointed Kreston Global member firms in India and Mexico (Kreston Rangamani & Kreston BSG) to carry out similar work.
Montse Martin, the company’s Finance Director, said: “DOGA Group has engaged the services of Kreston’s Partners in Spain, Brazil and China for Audit, Tax and Transfer Pricing matters for several years. As a result of this mutually beneficial relationship, we are now turning to Kreston firms in India and Mexico to assist our international subsidiaries.
“To date, we have been extremely impressed with the dedication of the Kreston Partners and their ability to provide a personalised service throughout, tailored to the requirements of each of our affiliates.”
“The cohesion between members across the network is one of Kreston’s greatest strengths and we look forward to their continued support”.
Elena Ramírez Marín, lead client partner for DOGA Group at Kreston Iberaudit, commented:
“It has been very gratifying to help our friends at DOGA expand their international operations. The work has also highlighted the tremendous benefits the Kreston Global network gives to both clients and member firms.”
June 10, 2021
June 7, 2021
Pass through cost – whether mark up to be added? Perspective of tax authorities in India
By Amit Ajmera, Kreston SGCO, India
In the recent round of a Transfer Pricing Assessment (“TPA”) of an Indian entity, a Wholly-Owned Subsidiary (“WOS”) of a foreign entity, the transfer pricing authorities in India have taken a view that the pass-through cost billed by the WOS to its parent entity and reimbursed by the parent entity to the WOS, should be done with a mark-up and not on the cost to cost basis. The said cost needs to be included in the marked-up cost base for determining the arms-length arrangement between the WOS and its group entity.
Background
The taxpayer is part of a multinational group that is in the business of undertaking clinical trial activities globally. To undertake the said business activities, typically one of the entities in the group (i.e., the service provider) would enter into a service agreement (i.e., a Master Service Agreement or “MSA”) with a pharmaceutical company (i.e., the service recipient or client) to undertake clinical trials in identified geographies. The agreement, among other things, categorically states that the pass-through cost incurred by the service provider while providing the services will be reimbursed by the service recipient on a cost-to-cost basis. Which expense would qualify as the pass-through cost is also defined in the said agreements. Further, the agreements clarify that the pass-through cost that would be incurred in any part of the identified geographies will have to be recovered only by the entity entering into the MSA with the service recipient and not by another group entity, which may be undertaking clinical trials in its respective geography. Pass through cost are cost which are required to be incurred during undertaking clinical trials that are required to be paid by the pharmaceutical company to the sites (hospitals), investigators (doctors) and patients. But because it is administratively not possible, the pass-through cost is normally paid by the service provider and recovered from the service recipient.
Facts of our client
In the case of the Indian WOS, on the basis the MSA entered into by its group entity with its client, the group entity had entered into a service agreement with the WOS in India. In addition, there was also a tripartite agreement that was entered into among the WOS, the site, and the investigators in India for undertaking clinical trial activities in India. The service recipient, in this case, had also signed the agreement as a confirming party to the agreement entered among the Indian Parties. The medicines / drugs that were required for undertaking the clinical trials in India were supplied directly by the service recipient to the site. To undertake the clinical trials, the Indian entity had to make payments to the sites and the investigators which were like pass-through cost. The same was invoiced by the WOS to the group entity on the cost to cost basis. This was in addition to the invoice raised by the WOS on the group entity for the services of clinical trials rendered by it. The invoice for intercompany services was raised on a cost-plus basis.
View of the transfer pricing authorities at a lower level
The transfer pricing officer has taken a position that the pass-through cost should be added to the marked-up cost base for determining whether the transaction between the WOS and the group entity is on an arm’s length basis.
Way forward
We have filed an appeal with the higher authority challenging the view of the lower level.
January 28, 2021
CA SAURABH PANWAR
Tax Partner Manager – Direct Taxes
SNR & Company Chartered Accountants, India
In India and globally, the supply and procurement of goods and services digitally have undergone exponential growth with the expansion of information and communication technology. Indeed, e-commerce is now growing significantly faster than the global economy. The Indian tax authorities are constantly taking stock of new developments and introducing necessary changes to the Indian taxation laws to ensure that digital transactions are taxed appropriately. One such change is the levy of tax on non-resident e-commerce operators, effective from 1 April 2020.
The Finance Act, 2016 initially provided that a resident carrying on a business/profession, or a non-resident having a permanent establishment (PE), in India shall deduct an equalisation levy of 6% (the ‘2016 Levy’) on the amount paid/payable for certain specified services (e.g. advertisement) to a non-resident service provider, if the aggregate amount of consideration for the specified service exceeded INR 100,000 in a financial year.
Effective from 1 April 2020, the Finance Act, 2020 has introduced a new levy of 2% on the e-commerce operator on receipt of consideration for online sale of goods or services, made or provided or facilitated by it (on an amount of at least INR 20 million in aggregate) from:
Provisions in brief
Definitions
Compliances for non-resident e-commerce operators
Every e-commerce operator will be required to make equalisation levy payments quarterly, as follows:
Quarter ending | Due date |
30 June | 7 July |
30 September | 7 October |
31 December | 7 January |
31 March | 31 March |
Availability of tax credits
In general, non-residents paying taxes in India could obtain tax credits for these in their country of residence under the relevant DTAA. The equalisation levy has been introduced under a separate legislation rather than under the Income Tax Act. Thus, determining the availability of credit for the equalisation levy in the residence country is going to be challenging.
Conclusion
The new equalisation levy on e-commerce operators could impose on them a significant compliance burden and additional costs. The peculiarity of these businesses in earning millions of revenues without any physical presence has certainly been a matter of concern for countries with a large customer/IP user base. Modern ways of doing business do need such taxes, and all these measures are simply India’s response to the changing times.