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International Taxation Including Transfer Pricing

International Taxation Including Transfer Pricing

The multinational corporations have changed the fundamentals of business growth opportunities around the world. Companies are adapting new revenue policies and accepting new challenges in this competitive market. With more complexities, the tax & regulatory compliance is changing constantly in the global market. In India, the tax & regulatory affairs are shifting towards a new horizon. The implementation of the tax revenue collection through digitization and by the source of e-governance is in process.

Meru and Associates has a team of dedicated international tax practitioners & professionals. With technical knowledge and experiences in practical fields, we can help the multinational corporations to manage the risks of multiple tax processes and regulations across the globe.

Understanding this need of the entities, DVKS and Associates offers a complete spectrum of international tax services which include:

International And Cross Border Taxation

Our international tax professionals help entities address various concerns pertaining to cross border transactions.

  •  Understanding the business of the entity and the transactions undertaken and help structure these in order to mitigate the risk of Permanent Establishment (PE) exposure
  •  Advisory on cross border transactions to help manage Permanent Establishment (PE) exposure and also minimize double taxation
  •  Inbound tax advisory/outbound tax advisory
  •  Identifying competitive supply chain to drive efficiencies for existing and target markets
  •  Assist in tax efficient repatriation of funds
  •  Help understand the applicability/mitigation of withholding taxes on cross border payments (royalties, interest, fees for technical services)
  •  Understanding the impact of POEM regulations on entities at the group level evaluating these in the light of the Indian regulations and comparing these with the POEM regulations adopted globally
  •  BEPS and GAAR Advisory

Analysis of Double Taxation Avoidance Agreement

A double taxation avoidance agreement (DTAA) is signed between two or more countries with the objective that tax – payers in these countries can avoid being taxed twice for the same income.

Keeping in mind the transactions undertaken by the entity, we help understand the tax implications of such transactions in the light of the tax treaty to ensure the elimination of double taxation, advice on the withholding tax rates as per the Income Tax Act vis-à-vis tax treaties.

Transfer Pricing

Transfer pricing (TP) has grown into one of the most contentious issues worldwide. Entities not only need to plan their international transactions within the existing framework but also need to plan in anticipation of future uncertain tax policies. Keeping this in mind at DVKS and Associates ,we offer optimized solutions – planning, compliance & advisory services:

  •  Formulating and implementing global transfer pricing policy.
  •  Review existing TP policy and ensuring adherence.
  •  Assisting in valuation of business associated with business restructuring, mergers, and acquisitions etc.
  •  Maintenance of robust documentation as per applicable laws and assisting in compilation of master file and country specific documentation.
  •  Benchmarking support
  •  Audit under Transfer Pricing and Issue of 3CEB as required by the Indian Income Tax Laws
  •  Drafting and review of inter – company agreements
  •  Representation before tax authorities & Litigation
  •  Due diligence from transfer pricing perspective.
  •  Advice on BEPS readiness and implementation , the applicability of master file and country by country reporting (CBCR) requirements, functional and comparability analysis, advise on transfer pricing risk analysis and alignment with group’s master file
  •  Advance Pricing Agreements (APA), Mutual Agreement procedures (MAP), Safe Harbour applications and transfer proceedings.

Expatriate Taxation

Very often entities are faced with issues pertaining to expatriate taxation. We provide comprehensive solutions to various issues faced by entities pertaining to expatriate taxation

  •  Determination of residential status on expatriate employees in India and the incidence of the tax on income earned
  •  Formulating employment compensation structures in light of the Income Tax Act
  •  Computation of withholding taxes from salaries of expatriate employees and filing of withholding tax return
  •  Structuring employment agreements for expatriate employees with a view to mitigate the risk of Permanent Establishment (PE) for overseas employers in India
  •  Preparing and filing of personal income tax returns.

FREQUENTLY ASKED QUESTIONS

Q.1. What is international taxation, and how does it impact businesses operating globally?

International taxation refers to the tax laws and regulations applicable to businesses and individuals engaged in cross-border transactions.

Key points:

  • Taxation on Global Income: Indian residents are taxed on their worldwide income, while non-residents are taxed only on their India-sourced income.
  • Double Taxation Avoidance Agreement (DTAA): Prevents taxpayers from being taxed twice on the same income in two different countries.
  • Foreign Tax Credit (FTC): Businesses and individuals can claim tax credits for foreign taxes paid, reducing overall tax liability.
  • Permanent Establishment (PE) Rules: Defines when a foreign company is liable to pay tax in India based on its business presence in the country.
  • OECD & BEPS Compliance: Businesses must comply with OECD guidelines and Base Erosion and Profit Shifting (BEPS) regulations to avoid aggressive tax structuring.

Transfer pricing refers to the pricing of transactions between associated enterprises (AEs) in different countries to ensure fair tax compliance.

Key points:

  • Applicability: Applies to cross-border transactions between related parties (e.g., parent company and subsidiary).
  • Arm’s Length Principle (ALP): Transactions must be priced as if they were between unrelated parties under market conditions.
  • Transfer Pricing Documentation: Businesses exceeding prescribed thresholds must maintain three-tier documentation:
    • Master File – Global business structure and financial overview.
    • Local File – Country-specific transactions and pricing details.
    • Country-by-Country Report (CbCR) – Global profit allocation and tax details for MNCs with turnover exceeding ₹6,400 crore (as per OECD BEPS norms).
  • Safe Harbour Rules: Provides pre-determined margins for eligible companies to reduce transfer pricing disputes.
  • Advance Pricing Agreements (APAs): Allows businesses to obtain tax authorities’ pre-approval on pricing methods for cross-border transactions, reducing litigation risks.

The DTAA helps taxpayers avoid being taxed in two countries on the same income.

Key points:

  • Types of Relief Under DTAA:
    • Exemption Method: Income is taxed in only one country.
    • Tax Credit Method: Tax paid in one country is credited against tax liability in another country.
  • Applicable to Individuals & Businesses: NRIs, foreign companies, and MNCs can claim DTAA benefits to avoid double taxation.
  • Form 10F & Tax Residency Certificate (TRC): Required to avail DTAA benefits in India.
  • Common DTAA Partner Countries: India has agreements with USA, UK, UAE, Singapore, Germany, etc. to facilitate lower tax rates and exemptions.
  • Lower Withholding Tax Rates: Certain interest, royalty, and dividend payments to foreign entities can be taxed at reduced DTAA rates.

Businesses engaged in cross-border transactions must comply with various reporting and documentation requirements.

Key points:

  • Section 92A to 92F (Transfer Pricing Regulations): Governs pricing of international transactions between related parties.
  • Form 3CEB (Transfer Pricing Audit Report): Mandatory for businesses exceeding specified thresholds in international transactions, certified by a Chartered Accountant (CA).
  • FEMA & RBI Compliance:
    • Businesses must comply with Foreign Exchange Management Act (FEMA) guidelines for foreign remittances.
    • RBI reporting is mandatory for certain foreign investments and remittances.
  • Equalisation Levy (EL 2.0) for Digital Transactions: Applicable to foreign digital businesses earning revenue from Indian customers (e.g., Google, Facebook ads).
  • Thin Capitalization Rules: Limits the interest deduction on cross-border loans to prevent profit shifting.

A CA ensures that businesses comply with international tax laws while optimizing tax efficiency.

Key points:

  • Transfer Pricing Advisory & Documentation:
    • Preparing Master File, Local File, and CbCR reports.
    • Ensuring pricing policies comply with ALP standards.
  • DTAA & Foreign Tax Credit Advisory:
    • Assisting businesses and individuals in claiming DTAA benefits.
    • Filing Form 67 to claim foreign tax credits in India.
  • Cross-border Tax Structuring & Compliance:
    • Advising on tax-efficient business structuring for global expansion.
    • Ensuring compliance with GST on cross-border services.
  • FEMA & RBI Compliance:
    • Assisting with foreign remittances, investments, and FDI compliance.
    • Filing FC-GPR, FC-TRS, and other RBI forms.
  • Tax Litigation & Dispute Resolution:
    • Representing clients before ITAT, High Courts, and tax authorities in case of international tax disputes.
    • Negotiating Advance Pricing Agreements (APAs) with tax authorities.