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Business Advisor - December 25, 2012 - Preview Copy

Business Advisor - December 25, 2012 - Preview Copy

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Published by D. Murali

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Published by: D. Murali on Jan 06, 2013
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Volume I Part 5 December 25, 2012 1
Business Advisor
Business Advisor
(Fortnightly inputs for professionals and executives) 
Volume I Part 5 December 25, 2012
Volume I Part 5 December 25, 2012 2
Business Advisor
 Residence Certificate Rules - T. N. PandeySecretarial Standards - Dr S. ChandrasekaranVegetables on EMI - Bimbadhar MishraService tax on reimbursements ultra vires - Dr Sanjiv AgarwalCooperative governance - Dr B. Yerram RajuCorporate Social Responsibility (CSR)
Rahul Pillai, Country Manager India, InteremYear-end observations
Manish Garg, President, Everest Industries Ltd
Ankur Bhatia, Executive Director, Bird Group
Abhijita Kulshrestha, Gemstone Universe
Sudarshan Boosupalli, GM-India, Ruckus Wireless Inc.
Bijay Agarwal, Managing Director, Salarpuria Sattva
Preenand Premachandran, CEO, Hebron Properties
Suraj H. Asrani, COO, Cornerstone Properties
Asif Upadhye, CFO, Never Grow UpInformation - Section 80CCGCase laws update - V. K. Subramani
(Cover image: Toshiba Satellite laptop keyboard) 
: "Management and editors do not necessarily agree with theviews of the authors in their articles and of the readers in their letters,and of the query editors in their replies. The editors, authors and / orpublishers shall not be responsible for any kind of result generated outof any action taken on the basis of suggestions, etc., made in any of thewrite ups, interviews contained in any part of the magazine or for anyerror, omission, commission to any person, whether subscriber orotherwise. The copyright of all the materials printed herein includingarticles, queries and replies etc., rests with the publishers".
Volume I Part 5 December 25, 2012 3
Business Advisor
 Tax Residence Certificate Rules are half-baked response to treaty-shopping
T. N. Pandey 
 The object of Double Taxation Avoidance Agreements
(‘Treaties’ for short) is to eliminate the double taxation of 
certain incomes where residents of one country derive incomefrom a source in another country and also aim to ensurefacilitating international trade and commerce, flow of investments as also equitable collection of revenue. Obviously,benefits of such treaties can legitimately be availed of by theresidents of the contracting States. However, the residents of other (third)States misuse the bilateral tax treaties through treaty-shopping which isdone through the establishment of basecompanies solely for enjoying the benefits of taxtreaty rules without being a party to these.
Indo-Mauritius tax treaty
Indo-Mauritius tax treaty is a classical exampleto illustrate how treaties are abused. Treaty-shoppers have made Mauritius a preferreddestination for investments in India. Because of loopholes in the treaty, 40% of FDI comes to Indiathrough Mauritius! One major abuse of thistreaty is that a mere certificate of residence fromMauritius, which cannot be questioned by the AO, confers tax exemption inrespect of capital gains! Umpteen instances from the decisions of Courtsand Rulings from Authority for Advance Rulings (AAR) have demonstratedmisuse of the treaty. One instance of abuse can be seen from the recentruling of AAR in
SmithKline Beecham Port Louis Ltd., in re (2012) 209 Taxman 596 
. The company before the AAR claimed to be a tax resident of M
auritius. It is a part of ‘G’ group of companies. Its shares are held by aCompany ‘S’ of United Kingdom. The applicant holds 99.9 per cent shares of an Indian company ‘GS’ which is also a part of ‘G;’ group. The applicant
proposed to transfer its shares i
n ‘GS’ to ‘K’ a Singapore based company. Itis also a part of ‘G’ group of company. The claim before the AAR was that
the income derived by the proposed sale would be capital gains and thoughit is taxable in India under the Income-tax Act, it is not taxable in India inview of Article 13 of Double Taxation Avoidance Convention between Indiaand Mauritius. On these facts and issues raised, the AAR held in favour of 
 Treaty-shoppershave madeMauritius apreferreddestination forinvestments inIndia.

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