For instance, proper application of TP methodology can make a difference when defining each entity in a group — even while meeting the ‘business purpose’ test — based on functions and risks.

The authors observe that one of the significant challenges in ‘functional business restructuring’ is the application of the arm’s length principle. “Would an independent enterprise be compensated for loss of profit due to a commensurate change in its functional, asset or risk profile? What if the business restructuring results in an overall increase in global profitability and yet adversely impacts the financials of one of the previously profitable business enterprises?” These factual questions have no standard answers, though.

Discussed in detail is TASCM or tax aligned supply chain management, which optimises the tax impact of current and prospective changes in business processes, product flows, and assets to increase the profitability and working capital efficiency of supply chains.

Key features of TASCM are as follows:

A tax efficient centralised structure, created through a low-taxed principal company which centralises certain key supply chain management functions and responsibilities.

Functions, risks and profits shifted from manufacturing and sales subsidiaries to the principal.

Local operations earning a profit that is limited and commensurate to their functions and risks.

The authors caution, however, that tax administrations are increasing their scrutiny of TASCM initiatives undertaken by multinational organisations.

For example, “Tax administrations challenge ‘conversions’ of local operations either on the ground that no substantive change has occurred or the buyout payment to the local subsidiary that has had its role reduced is not adequate to compensate it for the local intangibles it developed.”

Valuable addition to the professionals’ shelf.

Are foreign television channel companies with a footprint over India taxable here, under the Income-Tax Act? This was the crux of the Satellite Television Asian Region Ltd case that came up before the Mumbai tax tribunal a few years ago.