1

Corporate Law Cell @ Corp

Speak
CRUX
 The week that was …
Corporate Cell Watch
 Top 5 Issues of Taxation in
India  Tuesday Presentation (31st,
August, 2010) – Meetings and
 Price Rise and Inflation…. A Procedures – Company Law
Critical Review
 Corporate Law Cell, Calls for
 Deciphering the FTP (2009 – Papers!!! For its proposed
2014) Corporate Law Review 2011, for
more information, check corporate
 law cell blog.

The week that was….

FDI in Multi Brand Retail Further Reading
Commerce Ministry Discussion
Commerce Ministry is all set, to
Paper –
setup a panel to study possibility of
allowing FDI in Multi Brand Retail http://dipp.nic.in/DiscussionPapers/DP_
Sector. FDI_Multi-
BrandRetailTrading_06July2010.pdf
(Economic Times, 20th August,
2010)

Corporate Law Cell Newsletter Volume 1 Issue 4

© Corporate Law Cell. 2010. ALL RIGHTS RESERVED
 2

FDI & Banking Numbers that Matter

The central bank has proposed 26% Foreign Investment limit

changes in the provisions relating to in Insurance.
private banks that will make it
49% FDI in Banks through
difficult for them to attract foreign
Automatic Route.
investment if they have insurance
ventures. And the proposals of 25% Additional FDI in Banks
private banks that have an insurance with FIPB approval.
JV to gather FDI should be approved
by both RBI and IRDA. 50% Proposed sectoral FDI cap
in Private Banks.
(Economic Times, 20th August,
2010) 74% Total FDI allowed in banks
at present.

Around the World IPR

Intel Corporation has acquired
security software maker McAfee for
$ 7.7 Billion, in a bid to capitalise on
rising demand for IT Security
Technology.
In order to facilitate faster grant of
trademark and expedite the disposal
of trademark cases, the government
is considering changes in existing
trademark rules.

(Economic Times, 20th August, (Financial Express, 21st August,

2010) 2010)

100% FDI in LLP‟s likely Suggested Reading of Editorials

The government may soon allow  Paralysis at the Fed by Paul
foreigners to set up limited liability Krugman
partnerships in sectors where 100%
foreign investment is allowed.  Europe at risk of double – dip
recession - Jason Stiglitz
(Economic Times, 25th August,
2010)  The Return of Fiscal Dominance
by Suman Bery – Economic and
Court Watch Political Weekly. (August 14th –
20th , 2010)
The Bombay HC has ruled in favour
of SEBI saying that it (SEBI) has the
jurisdiction to investigate the audit
firm Price Waterhouse Coopers for
its alleged involvement in Satyam
Scandal. (Economic Times, 26th
August, 2010)

Top 5 Issues of Taxation in India
By Samta Thapa
The following editorial aims at identifying some of the most worrying issues of taxation faced by
both government and individuals in our country.
Tax Issues Explanation
Transfer Pricing The price that is assumed to have
been charged by one part of a
company for products and services
it provides to another part of the
same company, in order to calculate
each division's profit and loss
separately is called transfer pricing.
Controlled Foreign Corporations A corporate entity that is registered
(CFC) and conducts business in a different
jurisdiction or countries other than
the resident nation of the
controlling owners.
Need For Thin Capitalisation Thin capitalisation refers to a
Norms situation where an entity is highly
geared, that is, has high proportion
of debt as compared to equity.
3
Problem
The tax authorities have
typically been adopting
aggressive stands, especially
with respect to captive units in
India. This leads to TP audits
and inconvenience to the tax
payers. Hence, the requirement
for Advance Pricing Agreements
to mitigate disputes and
uncertainty in relation to
transactions between associated
enterprises.
Currently CFC regulations are
not prevalent in India because of
the lack of full capital account
convertibility, yet India does
propose to introduce CFC
regulations. As part of
its proposal to curb tax
avoidance, DTC aims to
empower the revenue to tax
“passive income” earned by a
foreign company controlled
directly or indirectly by a
resident in India, and where such
income is not distributed to
shareholders resulting in deferral
of taxes.
The provisions of proposed DTC
on thin capitalization
implications (that is, re-
characterization of debt as equity
and vice-versa) will only kick in
upon identification of an
impermissible avoidance
arrangement. This includes
situations where the arrangement
 4

amongst parties is not at arm’s

length or lacks commercial
substance or adopts means
which are not adopted for bona
fide purposes.

Foreign Tax Credits Foreign tax credit is a critical
mechanism for outbound assignees
to avoid double taxation. In order to
avoid double taxation of income,
India has entered into double
taxation avoidance agreements
(DTAAs) with some countries.
DTAA gives the first right to
tax, to the country of residence
and such income is exempt from
taxes in the source country, but
subject to fulfilment of certain
conditions. However, the
absence of clarity on foreign tax
credits legislation has
contributed to unsuccessful
outbound investment of Indian
companies.

Goods and Service Tax Goods and Services Tax (GST) is a The main hindrances that stand
part of the proposed tax reforms before GST is –
that revolves around the central
government ideology of creating  Getting States to agree
efficient and harmonized on a uniform rate of
consumption tax system in the taxation for commodities
country. in a certain industry
segment.

 The states are worried at

loss of income, and how
government will
alleviate the loss of
revenues that will be felt
by the states exchequer.

Suggested Further Reading For Further Reference

 Advance Pricing Agreements Discussion Paper on GST and DTC

 Arms – Length principle in  http://finmin.nic.in/GST/inde

commercial transactions x.asp

 Nature & Functioning of  http://finmin.nic.in/DTCode/i

Double Taxation Avoidance ndex.asp
Agreements.
 5

Price Rise and Inflation …. A Critical Review

By Nikita Ann Chacko

What is Inflation? The Causes for Present Inflation

A sustained rise in the prices of  Supply Side Shock (

commodities that leads to a fall in the Unavailability of raw materials,
purchasing power of a nation is called rise in cost of component of
inflation. production)

 Rise in Food Price

 Policy Shock- Rise in Fuel Price

Routine Fiscal Measures to Curb Inflationary Trends
 Persistent Supply-Demand Side
Fiscal Policy – Public Expenditure, Pressure(Demand-Supply Pull
Public Borrowing, Public Revenues. Inflation)

 Cost Push Inflation

Monetary Policy – Change in Bank  Consumer Price Inflation
Rate, Open Market Operations,
Variable Cash Reserve Ratio.

Measures taken by RBI in present case Measures taken by the Government

 Raised Repo Rate by 25 Basis  Disinvestment of PSU

Points from 5.5% to 5.75%
 Liberalized Imports
 Reverse Repo by 50 Basis
 Zero duty sugar import
Points to 4.50%
 Enhanced allocation of wheat
 Cash Reserve Ratio to 6.0%
for states.
 Statutory Liquidity Ratio to
25%

Questions to be raised

Current Scenario
 Despite apparent decrease in
 Inflation at present is at 13.7%
inflation, how has the food cost
have remained high?  Food Inflation at 10.7%
 Supply chain management of  Fuel price index has declined
government‟s distribution of from 12.6% to 12.5%
essential commodities have
been poor, why?
 6

Deciphering the FTP (2009 – 2014)

The FTP or Foreign Trade Policy is a policy document highlighting the direction the government
has chosen to give, with regard to promotion of foreign trade in India. The following trade policy
was adopted at a time when global recession showed no signs of relenting. Hence caution seems to
be the key theme that runs throughout the policy document.

The Key Highlights of FTP 2009 – 2014 can be summarised as follows –

Special Focus Initiatives - Market Diversification, Technological Upgradation, Support to status
holders, Agriculture, Handlooms, Handicraft, Gems & Jewellery, Leather, Marine, Electronics and IT
Hardware manufacturing Industries, Green products, Exports of products from North-East, Sports
Goods and Toys sectors.

Market Diversification – In light of the prevailing circumstances of poor demand from traditional
markets for Indian goods. The policy makers have chosen diversification of Indian exports to non –
traditional markets such as Latin America, Africa, Parts of Asia and Oceania. To achieve the same
the 26 new countries has been added “Focus Market Scheme”, Incentives under focus market
scheme has been increased from 2.5% to 3.0%

Technological Upgradation – Key theme here being promotion of EPCG (Export Promotion Capital
Goods). EPCG scheme at Zero Duty on certain goods – Existing EPCG scheme at 3% has been
simplified to ease its usage by exporters.

Support to Status holders – To encourage exports the government has enabled exporters additional
duty credit scrip @ 1 % of the FOB (Free on Board) of past export to be granted for specified
product groups including leather, specific sub sectors in engineering, textiles, plastics, handicrafts
and jute. This duty credit scrip could be used for import of capital goods by these status holders.

Agriculture, Handlooms, Handicraft, Gems & Jewellery, Leather and Marine Products - The reason
for grouping all these products under one head, is that all these categories form the majority of
Indian exports, or majority of exports arise from allied sectors to the above. The present FTP has
chosen the following as a higher priority coinciding with the UPA government‟s „aam – aadmi‟
motto and fits perfectly with NREGA – the flagship program of UPA. The policy in brief with
regard to these sectors have dealt with lots of incentives for exports, import incentives will be given
on technological upgradation for equipments used in these sectors and it has also dealt with creation
of zones for economic excellence for promoting the same.

Green Products & Exports from North East – A notable point of FTP 2009 – 2014 worth mentioning
is the government plans of making India a hub for production and manufacture of green products
and Technology. Another positive aspect seems to be the incentivizing exports from North East in
an overall bid to promote economic development of the North Eastern states.

For Further Reading Refer –

 http://pib.nic.in/archieve/ForeignTradePolicy/ForeignTradePolicy.pdf

 http://www.allindiantaxes.com/pdf/83f2f60b.pdf
 7

Conceptualised and Edited by –

Team Information Panel of

Corporate Law Cell.

For further queries and

contributions, please write to us
at ilsccell.ip@gmail.com