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Our Bureau

Hyderabad , July 1

With global corporate majors entering the Indian market and the domestic corporate houses going aggressive with their global acquisitions, the country needs to evolve an appropriate framework for regulating the inbound and outbound investments, according to the Vice-President of the Income Tax Appellate Tribunal here, Mr N.D. Raghavan.

He said the absence of such a regulatory framework might lead to serious consequences in the balance of payments position. There were instances of developing nations' currency being subject to severe stress due to improper exchange control regulations, he said.

Mr Raghavan was addressing a daylong seminar organised by the International Fiscal Association (IFA) on `TDS, EPC Contracts & Outbound Investments' here on Friday.

Understanding TDS

According to him, TDS in case of foreign payments changes its colour from recovery to charge from the payer angle. This is the reason why one must take due care in understanding issues surrounding TDS. He said a poor understanding of the TDS provisions might erode the net gain envisaged and alter the profitability of a venture topsy-turvy. Further, compliance with TDS provisions in case of foreign payments has the complexity of choosing the best between the treaty and the Income Tax Act.

Cocktail of tax issues

Referring to the mega infrastructure currently being executed in a collaborative manner by major players through EPC (engineering, procurement and construction) contract routes, Mr Raghavan said a cocktail of tax issues arise whenever foreign suppliers provide these EPC services.

The issues include where they are residing, do they have a permanent establishment in our country, what component is supply of products, what component is supply of products, are they linked or separable, and so on.

"As the stakes in these projects are high, the damage of such lack of understanding could lead to sizeable amount of tax disputes," Mr Raghavan said.

Statutory compliance

Addressing the seminar, the IFA Hyderabad Sub-Chapter Chairman, Mr P.V.S.S. Prasad, said it was relevant to comprehend statutory compliances with respect to exchange control regulations and structuring such investments in a tax-efficient manner, in the backdrop of the Indian industry's metamorphosis of reaching out to potential overseas markets and setting up enterprises outside India. He stressed the importance of the study and research of International fiscal laws amidst growing cross-border trade and commerce.

More Stories on : Income Tax | Investments | Foreign Direct Investment

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