SCHOOL OF COMMERCE, DAVV

ASSIGNMENT OF DIRECT TAX

SUBMITTED TO:- SUBMITTED BY:-

Ms. Astha Badjatia Krati Gupta
ROLL NO.:-
MFT/18/2146
SECTION-A
MBA(F.T.)-5 Yrs.
5th SEMESTER

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 Tax Evasion by Cadbury

Probe into Cadbury India's Rs 200-cr tax evasion case

Authorities are investigating the local unit of chocolate maker Cadbury over allegations the company
might have evaded as much as Rs 200 crore in taxes, the minister of state for finance said on Thursday,
as the country beefs up its efforts to increase revenues to contain a widening fiscal deficit."Two cases of
tax evasion by Cadbury India Ltd have been detected by the Directorate General of Central Excise
Intelligence during the years 2009-10 to 2012-13, up to 31st October, 2012," the minister, S S
Palanimanickam , told Parliament in a written reply to questions from law makers .This is the second
time in as many years Cadbury has run into trouble with Indian authorities. Last year, an investigation
was launched to determine whether Kraft Foods Inc needed to pay taxes arising from its $19 billion
takeover of Cadbury. That probe is ongoing. No index entries found

The latest of the two cases against Cadbury's India unit, controlled by Mondelez International Inc,
involves alleged evasion of central excise duty, or factory gate tax at a company facility in Himachal
Pradesh .A spokesman for Cadbury India said the company was "fully cooperating" with authorities.
"Since the investigation currently is underway, it will be inappropriate on our part to discuss the details
at this time," the spokesman said in an email. Tax officials were not immediately available for comment.
Kraft Foods last month spun off its North American grocery business as Kraft Foods Group. Mondelez
International is the name of what remains from Kraft Foods after the spin off .Its brands include Oreo
cookies, Cadbury chocolate and Trident gum.

CBI registers a case against confectionery giant Mondelez, the maker of Cadbury chocolates, to probe
allegations of bribing public servants to evade Rs580 crore in excise duty

New Delhi: The Central Bureau of Investigation has registered a case against confectionery giant
Mondelez , the maker of Cadbury chocolates, to probe allegations of bribing public servants to evade Rs
580 crore in excise duty, a top official said on Wednesday.
The probe has been initiated on the recommendation of the Central Vigilance Commission (CVC) that
did the groundwork, said chief of the anti-corruption watchdog K.V. Chowdary.
“Registration of case has happened after the Commission has supplied more information to them. We
did some initial investigation. We got a lot of documents that we made available (to them)," Chowdary
told PTI in an interview.
He said the Commission was looking into allegations of bribery of certain public servants in the duty
evasion case. The case relates to Mondelez India’s ‘ghost’ production unit in Baddi, Himachal Pradesh.
“What we are looking at is the allegation that these people have made some inappropriate payments to
public servants to get expedite or to get some benefits. “So who are these people who received these

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benefits and whether they attract any disciplinary or criminal proceedings... that is the scope of the
CVC’s work," Chowdary said when asked what allegations the CBI would investigate.
The CVC exercises superintendence over the working of the CBI in corruption related matters,
according to the CVC Act.
A Mondelez India spokesperson said in an email response that its executives acted in good faith and
within the law while claiming excise tax benefits for its plant in Baddi.
“The matter is currently in the legal domain and therefore it would be inappropriate for us to comment at
this time. We do not have anything new to share. For information, please consult our most recent Form
10-Q and 10-K filings," the spokesperson said.
Form 10-Q contains quarterly reports of a company and 10-K is the annual report of a firm. Both are
filed with the United States Securities and Exchange Commission (SEC).
According to Chowdary, information from other countries has been sought in the tax evasion case. “We
have already recommended (the case) to the CBI. The CBI is already in the process of investigating.
Here the information is to be got from other countries. So it is a time consuming process. The local
enquiries have been completed... they are awaiting information from the competent authority," he said.
The demand of about Rs580 crore was raised in 2015 against Mondelez India Foods Pvt Ltd, the
erstwhile Cadbury India Ltd, for allegedly evading excise duty by fraudulently taking exemption for a
‘ghost’ production unit in Baddi.
In 2011, the directorate general of central excise intelligence (DGCEI), now Directorate General of
Goods and Services Tax Intelligence (DG GSTI), here initiated a probe against the company for
allegedly misusing area-based exemption for its new unit in Baddi, even before it came into existence.
According to norms, new industrial units in Himachal Pradesh can get full exemption from excise duty
for production of specified goods for a period of 10 years. However, the unit should have been
established before March 2010 for availing the exemption.
During investigation, DGCEI officials allegedly found that Mondelez claimed excise duty exemption for
its new unit in Sandoli village in Baddi relating to a period even before it came into existence, officials
said. 
Here is the detail as the case took place in court

Cadbury India Ltd, Mumbai vs Department Of Income Tax on 18 May, 2016

आयकर अपीलीय अिधकरण,

अिधकरण मु ब ं ई "के
के " खं डपीठ
Income-tax Appellate Tribunal -"K"Bench Mumbai
सव ी राजे
,ले खा सद
य एवं सी. एन. साद,
याियक सद
य

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 Before S/Sh.Rajendra,Accountant Member and C.N. Prasad,Judicial Member
आयकर अपील सं ./I.T.A./5470/Mum/2012, िनधा रण वष /Assessment Year: 2005-06
Mondelez India Foods Private Addl. CIT, Range-5(1)
Limited Mumbai.
(formerly known as M/s. Cadbury India
Limited),
Mondelez House, Unit
No.2001, 20th Floor, Tower-3 Vs.
(Wing C)India Bulls Finance
Centre, Parel. Mumbai-400 013.
PAN: AAACH 0460 H
आयकर अपील सं ./I.T.A./5876/Mum/2012, िनधा रण वष /Assessment Year: 2005-06
Addl. CIT,6(3),Aayakar Mondelez India Foods Private
vs.
Bhavan,M.K. Road, Mumbai-20 Limited Mumbai-400 013.
(अपीलाथ /Appellant) ( यथ / Respondent)

Revenue by: S/Shri N.K.Chand-CIT Assessee by: Shri J.D. Mistry, Nishant Thakkar & Ms. Jasmin सु नवाई क तारीख / Date of
Hearing: 18.04.2016 घोषणा क तारीख / Date of Pronouncement: 18.05.2016 आयकर अिधिनयम,1961 अिधिनयम क धारा
254(1)के के अ तग त आदे श Order u/s.254(1)of the Income-tax Act,1961(Act) ले खा सद राजे के अनु सार PER RAJENDRA,
AM-

Challenging the order,dated 12/7/2012, of the CIT (A)-15,Mumbai the assessee and the Assessing
Officer(AO) have filed cross appeals for the year under consideration.Assessee-company,engaged in the
business of manufacturing and marketing of malted food,drinks and chocolates,filed its return of income
on 31/10/2005,declaring total income of Rs.61.98 crores.The AO completed the assessment u/s.143(3)
of the Act,on 31/01/2008,determining the income of the assessee at Rs. 75.67 crores.

2.First ground of appeal is about disallowance of Rs.7.30 crores out of the royalty payment made by the
assessee to its associated enterprise(AE),M/s. Cadbury Schweppes Overseas Ltd.,UK(CSOL)on the
ground that same was not at arm's length price(ALP)During the assessment proceedings,the AO found
5470 & ors.cadbury that assessee had entered into international transactions (IT.s)with its Associated
Enterprise(AE).For determining the ALP of such transactions,he made a reference to the Transfer
Pricing Officer (TPO).

2.1.During the Transfer Pricing proceedings,the TPO observed that the assessee had entered into a
technical assistance and royalty agreement with CSOL on 09.03.93for availing benefits of technical
knowhow developed by the AE relating to the manufacturing,processing,distributing and marketing of
products as well as benefits of continuing research and development (R&D) undertaken by CSOL,that it
had also entered into an agreement with AE on 20. 12.2000, that the assessee had agreed to pay royalty
to the AE @ 1.25%, that it had paid royalty to the tune of Rs.6.35crores,that it also paid Rs.730.41 lakhs
for the use of trade mark.The TPO was of the opinion that royalty paid by the assessee (Rs. 7.30crore)on

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trademarks could not be allowed.In the appellate proceedings, the First Appellate Authority(FAA)
upheld the disallowance.

2.2.During the course of hearing before us,the Authorised Representative(AR) stated that identical issue
was decided in favour of the assessee by the Tribunal while adjudicating the appeal for 2002-03(ITA
No.7408/Mum/ 2010 & 7641/ M/10;dt.13.11.2013; para 37-43; Pg-No.15-16),that the said order was
followed by the Tribunal,while deciding the appeals for AY.s 2003-04 and 04-05,that in the TP order for
the AY.2010-11 and 2011-12,the TPO had not made any disallowance for the identical payment.The
Departmental Representative (DR)left the issue to the discretion of the Bench.

2.3.We have heard the rival submissions and perused the material before us.We find that while deciding
the appeal for AY 2002-03(supra) the Tribunal has decided the issue as under:-

5470 & ors.cadbury "37.We have heard the detailed arguments from both the sides. The basic issue is
the correctness of ALP on the royalty payments made by the assessee company to its parent AE on
account of technical knowhow and trademark usage.
38.From the arguments of the DR, made on behalf of the TPO, the agreement for paying royalty on
technical know how at 1.25% and trademark usage at 1.25%, were overlapping and thus, TNMM
method used by the assessee was incorrect. According to the TPO, the best method to ascertain ALP in
the interest case was CUP, as the transactions were controlled. This was reasonable, as no data was
available from independent source to benchmark the transactions.
39.On going through the records and the orders of the revenue authorities, we find that in so far as the
payment of royalty on technical knowhow concerned, the assessee has been paying to its parent AE right
from 1993, as, other group companies are paying across the globe. It has been accepted by the TPO that
the payment does not effect the profitability of the assessee, if we are to examine the issue from that
angle as well. In any case the payment of royalty on technical knowhow is at par with the similar
payments from the group companies in other countries & region. Besides this, the payment is made as
per the approval given by the RBI and SIA, Government of India. Hence there cannot be any scope of
doubt that the royalty payment on technical knowhow is not at arm's length.
40.Coming to the issue of royalty payment on trademark usage, we find that the assessee, in fact is
paying a lesser amount, if the payments are compared with the payments towards trademark usage, by
the other group companies using the Brand Cadbury in other parts of the world. On the other hand, if we
examine the argument taken by the TPO with regard to OECD guidelines. On this point the assessee's
payment is coming to a lesser figure, as discussed in detail by the CIT(A).
41.We are not going into the arguments advanced by the DR/TPO on geographical differences, and
payments made to Harshey, as these arguments gets merged in the interpretation and details available in
the table supplied by the assessee and taken note of by the TPO and the CIT(A).
42.We are also not referring to the case of Maruti Suzuki Ltd. as we find that in so far as the instant case
is concerned, there is really no relevance.

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43.On the basis of the above observations, we are of the opinion that the royalty payment on trademark
usage is within the arms' length and does not call for any adjustment."

Respectfully,following the above order,and the order for subsequent AY.s we decide the Ground of
Appeal No.1 in favour of the assessee.

3.The second ground of appeal is about disallowance of AMP expenses (Rs.71. lakhs)towards the cost
allocable to CSOL for the benefit accruing to it.On perusal of the accounts of the assessee,the TPO
noticed that the assessee had debited advertisement and marketing expenses amounting to
Rs.85.15crores, that it was 11.11% of the sales recorded by the assessee during the year,that industry
average under the said head worked out to 6.55% only.The TPO 5470 & ors.cadbury directed the
assessee to file the details of AMP expenses, sales and royalty paid for a period of last 10 years.After
analysing the details,the TPO concluded that the assessee was paying higher and higher royalty to the
AE,that the AMP had also recorded steady growth over time and so had the sales,that the marketing
expenditure which was Rs.20.13crores in the AY19 96-97 had increased to Rs.85.15crores for the year
under appeal, that the royalty had increased from Rs.2.07 crores to Rs.13.56crores for the same
period.He held that high degree of correlation between the royalty payment and sales on one hand and
marketing and advertisement expenditure and sales on the other was not a matter of coincidence, that it
was coming out as a feature of business undertaken by the assessee,that the AMP expenses debited by
the assessee in the P&L Account was borne by it,that the benefit of higher net sales was accruing in part
to the AE as well.Vide his showcause notice,dt.12.12.07,he asked the assessee to show cause as to why
the cost of higher marketing expenditure entirely borne by it should not be apportioned/allocated in the
ratio of benefit accruing to the overseas AE as a result of higher sales.The cost of benefit accruing to the
assessee was computed at the same level at which the benefit was accruing to the AE.He held that the
benefit to the assessee from the sales was 1.78% of the net sales,that the overseas AE should bear 1.7%
of the AMP expenses that were entirely borne by the assessee.The TPO computed Rs.1.52
crores(1.78%) as the cost apportioned/allocable out of the AMP cost incurred by the assessee for the
benefit accruing to the AE.However,the cost was restricted to Rs.71.00 lakhs (being 0.87% of
Rs.85.15crores), in view of the disallowance/adjustment in income made on account of royalty for trade
mark. The AO passed the order and made the said addition.

3.1.Aggrieved by the order of the AO the assessee preferred an appeal before the FAA.Before him,the
assessee argued that it was primarily operating a chocolate confectionary segment,that it was the market
leader in so far as it 5470 & ors.cadbury related to the chocolate market in India,that it was commanding
70% of the market share,that in order to maintain its leadership and further maintain its market share it
was required to incur an expenditure on AMP for the products manufactured by it,that the expenditure
was incurred wholly and exclusively for its business in the licensed territory,that the products
manufactured by the assessee were in the impulse-purchase category,that for such products higher
advertising and marketing was a pre-requisite to increase product awareness, that the AMP expenditure
was incurred for creation of product-awareness of new products and recall-value of existing product in
the minds of Indian customers primarily,that it had a local marketing strategy of making advertise- ment

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campaigns and slogans in the local language,that local advertisement campaigns were driven towards
creating consumer appeal,that given the number of new multi-national players in the industry it was
important to advertise its products,that the intellectual property owner of the Cadbury brand were the
overseas AE.s,that they were responsible for brand positioning,design and the overall strategic
direction,that the AE.s had provided strict brand guidelines to ensure that overall strategy and vision
associated with the brand was adhered to by the assessee in India,that the AE.s would also do their brand
related exercise at their own cost for over all brand positioning and management on global basis which
would also benefit the assessee in an indirect manner,that the expenditure the AE would incur as brand
owner had substantially benefitted the assessee from a commercial stand point,that one of the key
benefit to the assessee was the brand itself,that it signified quality and thereby allowed the assessee to
charge a premium price,that the increased sales might have benefitted the AE by way of increased
royalty at 1% on the incremental sale,that same was insignificant as compared to the incremental
quantum of profits earned by the assessee on the increased sales with higher profitability,that the correct
way of looking at business need was to see the turnover as a result of the license,that if 5470 &
ors.cadbury the assessee could not have achieved the turnover without the license it clearly meant that
the net turnover of Rs.766.21crores had been achieved on account of license,that payment of Rs.13.66
crores to achieve the turnover and to realise the net profit of Rs.46.36 crores was reasonably at arm's
length,that the AMP exepenses incurred by the assessee for promoting the sales of its products in India
did not benefit the AE.s directly,that they were not involved in the business of manufacturing/trading of
such products in India either on its own or through any of its subsidiaries,that the entire AMP expenses
incurred by it were purely for assessee's own benefit,that the profit of the assessee belonged to the it on
which taxed were paid in India,that the average expenditure under the head AMP by the leading FMCG
companies for the period 2001-05 was 10.28%, that the AMP expenditure incurred by the assessee
during the same period was 10.45%,that the increased AMP expenditure that led to enhanced sales and
profitability on year on year basis,that for the purpose of analying the AMP expenditure incurred by the
assessee vis-a-vis the comparables it would be necessary to consider the factors like growth rate,nature
of business, number of products launched, territories serviced and turnover/profits achieved,that the
entire expenditure was focused on the Indian consumer,that the said fact was evident from the local
flavour/language/concepts,that there was neither any reason nor any contractual obligation to recover
money from the AE.s.The assessee relied upon the case of Maruti Suzuki India Ltd,decided by the
Hon'ble Delhi High Court.

3.2.During the course of appellate proceedings,the FAA directed the assessee to submit the average
expenditure incurred by the companies in the FMCG sector/ comparables.The assessee filed details by
its letter dated 14/12/2011.The FAA observed that the average of expenditure of the companies in the
FMCG segment was 8.89% on sales is against such expenditure of the assessee at the rate of 10.45%. He
held that the companies chosen by the assessee were not the 5470 & ors.cadbury same that could be
considered for benchmarking,that if the amount correspond - ing to the difference in average marketing
and advertisement expenses of those companies(@8.89%)and that of the assessee (@10.45%) would be
at 1.56%. He applied the difference to the total sale (Rs.766.21 crores) and determine the adjustment to
Rs.11.95 crores.He further held that the said amount would possibly be the amount of contribution that

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the AE should be paying to the assessee if the concept of bright line was applied, that the TPO had taken
much conservative approach by considering only the amount of expenditure incurred by the assessee on
AMP,that he had applied ratio of royalty paid for use of know-how to sale and had arrived at the total
adjustment of Rs. 71 Lacs only, that the assessee had contended that average profitability(PBT to sales
ratio) at 10.85%were much higher compared to the average profitability of the comparables at 3.57% in
the FMCG sector,that higher rate of profitability could not be justification of disproportionate and higher
expenditure, that there could not be any justification to incur such expenditure which was benefiting it as
well as it's AE,that in an ALP situation for any benefit which had been enjoyed by the AE and which
was payable in monetary terms had to be adequately compensated to the assessee.

TO KNOW THE FURTHER DETAILS ABOUT HOW THE PRECEDINGS OF THE COURT WENT
BY PLEASE REFER TO https://indiankanoon.org/doc/15173679/

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 Tiger Global’s Investment into Flipkart
The story of Tiger Global’s investment into Flipkart. Tiger Global was one of the earliest investors in
Flipkart.They held 22% of the company until 2018 when they sold about 17% to Walmart’s
Luxembourg entity FIT Holdings.This transaction was valued at over INR 14,500 Cr.But Tiger Global
had made its investments through funds based out of Mauritius.Since Tiger Global had made most of its
investments during the first half of the decade (obviously before 2016).So the amendment to the treaty
wasn’t really applicable to them.

So when they made all that money selling their stake in Flipkart, they figured they wouldn’t have to pay
any tax.And at first sight, this argument seems legit.Let’s dig deeper into the case by going through 3
argumentsThe funds were operating out of Mauritius.The directors were discharging their duties in
Mauritius.All in all, everything was firmly placed in Mauritius.But if you peel back the layers, you’ll see
that these funds are ultimately owned by Tiger Global Management LLC, USA — albeit through a maze
of holding companies.

So, the tax authorities argued that Tiger Global had in fact set up the Mauritius based entity for the sole
purpose of avoiding taxes.And therefore contested that they shouldn’t be exempt from paying tax on
gains they made through the Flipkart Transaction.Tiger Global, miffed with the taxmen, took the matter
to a quasi-judicial body — The Authority for Advance Rulings (AAR).And the case begins.

Let’s look into three arguments.

1. Focus on transaction, not on the entity that involved in the transaction Tiger Global investment fund
counsel had the following argument to make:

“It must be proven that the transaction [the final sale of shares] itself was designed to avoid taxes.”And
proving that the structure of the entity undertaking the transaction was designed for the avoidance of
income-tax should not be necessary here.

So, the Revenue (the Income Tax Department) had failed to discharge its burden of proof. But AAR
didn’t agree with this argument.

2. So, what’s AAR’s argument?

AAR said that you don’t just compute taxes by looking at the final transaction.

Instead, you look at the transaction as a whole —When were the shares bought? What was the purchase
price? What happened in between? Who’s the primary executioner? What’s the appreciation in value?
You look at everything.More importantly, the “head and brains” executing the transaction resided
elsewhere.Tax authorities had shown rather conclusively that a certain Mr. Charles P. Coleman

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(operating out of a U.S based entity) was the beneficial owner of the fund.And that “he” was primarily
responsible for most management decisions.

So the AAR hit back with the following observation:

In our opinion, it is not the holding structure only that would be relevant. The holding structure coupled
with prima facie management and control of the holding structure, including the management and
control of the applicants, would be relevant factors for determining the design for avoidance of tax. The
applicant companies were only a “see-through entity” to avail the benefits of India-Mauritius DTAA
[Double Taxation Avoidance Agreements]

But wait… what about the past judgements? Tiger Global had another weapon in its arsenal — Past
judgements on the matter. Specifically, a particular ruling in the case of Moody’s Analytics Inc.AAR in
this case conceded that capital gains accruing to a Mauritius based entity from the transfer of shares of
an Indian company shouldn’t ideally be taxed.

3. Flipkart is a Singaporean company. So, pay the taxes! The AAR said that “In this particular case,
gains were made by transferring shares of a Singaporean company. Not an Indian company.”That’s
right. Flipkart is based out of Singapore. Flipkart Singapore is the strategic shareholder of Flipkart India.
Flipkart India is the entity that owns most of the capital assets. The shares that were sold to Walmart —
that’s Flipkart Singapore, not Flipkart India.But the India-Mauritius tax treaty agreement is only
applicable to the transfer of shares of Indian companies.

Conclusion

AAR concluded that there was no doubt that Tiger Global had set up the Mauritius based entity to avoid
paying taxes and therefore should be liable to pay what the Income Tax authorities deem fit.

New York-based private equity (PE) investor Tiger Global moved the Delhi High Court against the
quasi-judicial body ruling. The ruling in June by Authority of Advance Ruling (AAR) had denied the PE
firm benefits of grandfathering provisions under the India-Mauritius Double Tax Avoidance Agreement
when it exited Flipkart in 2018.

“There is enough substance and decision making in the deal structure to get India-Mauritius treaty
benefits. The AAR has not gone into all the aspects of the deal before it denied treaty benefits to Tiger
Global," said a person with direct knowledge of the matter.

The Authority for Advance Rulings (AAR) had rejected a petition by Tiger Global claiming an
exemption from tax on capital gains resulting from the 2018 sale of its Flipkart stake to Walmart. Tiger
Global had claimed nil withholding tax on the capital gains, since its investment firms, which made the
Flipkart investment, were based in Mauritius and were set up before 2017. AAR ruled that they suspect
the tax treaty is being abused to avoid tax.

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The matter pertains to exit by, Mauritius-based entities, which were part of Tiger Global. These entities
had sold their stakes in Flipkart Singapore to a Luxembourg-based company for over ₹14,500 crore,
and, subsequently, had sought an advance ruling for zero withholding tax. The taxman objected that the
transaction purely for tax evasion, and AAR accepted its view.

AAR held that the Mauritius companies were only “see-through entities" created to avail the tax treaty
and the real beneficiary was the US firm.

“Tiger Global and its Mauritius entities have enough protection in the tax treaty to dispute the AAR
ruling," the person quoted earlier in the story said.

The new India-Mauritius tax treaty protects investments from Mauritius before 2017 and continues to
grant them treaty benefits.The ruling of the Delhi high court would be relevant for the startups which
were worried about ramifications on future exits if the deal involved Mauritius.

At least four rulings by AAR, including the one against Tiger Global, have labelled investments through
Mauritius as a tax avoidance route and thus not eligible for treaty benefits.

While investments through the Mauritius route and tax litigation have always been a grey area in
taxation matters, these recent cases are being viewed by investors as setting a precedent, which will
make them pay 21% tax on exits.

Tiger Global, the largest investor in Flipkart, has emerged as the second largest stockholder in Amazon,
its global rival, Business Insider said in a report on Tuesday. With this, Tiger has significant stake in two
of the three large e-commerce firms in India, who combined control on over 80 per cent of India's e-
commerce industry.

Snapdeal is the third firm, which is a large competitor for both Amazon and Flipkart.

It has investments from Japanese firm Softbank, which has also invested in Alibaba, China's largest
online player.

Tiger invested $ 1.1 billion to buy 2.44 million shares in Amazon and increase its stake to over 3.19
million shares in the world's largest e-commerce firm, the report said, citing a regulatory filing by the
hedge fund.

In India, Tiger led an investment of over $ 1 billion in Flipkart, an existing portfolio firm, in June 2014.
So far, it has invested over $ 2 billion in India, including $ 1 billion in Flipkart Global hedge funds and
venture capital firms invest in multiple companies

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12 | P a g e
O
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d Tax Haven Countries “Blessing for Foreign Investors”.

We are all beneficiaries of tax havens in ways you might not expect.

Tax havens have been around for quite some time, with some historians even mentioning their existence
in the form of isolated islands during the time of the ancient Greeks. The oldest tax havens of our times
include Liechtenstein, Switzerland, and Panama – each of which is believed to date back to the 1920s.
But even after so many years of existence, there is no universal definition of a tax haven. The
Organization of Economic Cooperation and Development (OECD) – a Paris-based group of 30
developed countries – uses key attributes for identifying whether a jurisdiction is a tax haven:

Tax avoidance has led to up to $32 trillion in lost revenues in banking systems across the world. Europe
is home to many tax havens that offer advantageous environments for capital gains taxes, income taxes,
and corporate taxes.

These havens have attracted large companies along with wealthy private investors who seek refuge from
taxation policies in their home countries. Tax havens have been known to greatly reduce and eliminate
taxes that would have otherwise been due by domestic tax authorities if not for their placement in
offshore accounts.

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First, if you live in a developed country, your taxes are probably much lower today than they were 30
years ago, thanks in part to tax havens. In 1980, top personal income tax rates in OECD countries
averaged more than 67 percent, and corporate rates that year averaged nearly 50 percent. To compound
the damage, countries routinely imposed extra layers of tax on capital, including dividend taxes, capital
gains taxes, inheritance taxes, and wealth taxes. These policies discouraged saving and investment,
stifling economic growth and causing significant economic hardship.

Beginning with Reagan and Thatcher, however, governments have been racing to cut tax rates and
reform tax regimes. Top personal tax rates now average only about 40 percent, and corporate rates have
been reduced to an average of about 27 percent. It is largely globalization—not ideology—that has
driven this virtuous “race to the bottom.” Governments are cutting taxes because they fear that jobs and
investment will flee across national borders. Tax havens, by providing a safe refuge for people seeking
to dodge confiscatory tax rates, have played a critical role in these positive developments. Better to get
some revenue with modest tax rates, lawmakers have concluded, than impose high tax rates and lose out.

Second, European duchies and Caribbean isles aren’t the only places that welcome tax refugees. The
United States, for instance, could be considered the world’s largest tax haven. The U.S. government
generally does not tax interest and capital gains received by foreigners who invest in America. And
since the IRS does not collect data on those payments, there is rarely any information to share with
foreign tax collectors. Moreover, U.S. corporate structures, such as Delaware and Nevada companies,
are excellent vehicles for foreigners to manage their investments. Thanks in part to these attractive
policies, foreigners today have more than $12 trillion invested in the United States. Yet if Merkel’s
efforts are successful and all nations are saddled with the obligation to help enforce foreign tax laws, it
is quite likely that a substantial share of that job‐creating capital will flee the United States.

Income Tax havens: These seven countries have no income tax

As per the data on 21 January 2020:

Income tax is levied by most countries today and is paid at varied rates depending on a country’s tax
laws. Income tax is essentially a tax charged on the net income of an individual or a business. This tax
has to be filed annually by the taxpayer and it acts as a source of revenue for governments.

In 2019 the highest income tax was collected in Sweden where individuals with highest incomes paid
more than 50 per cent of their taxable income. Countries situated in Northern Europe and North Atlantic
generally have greater income taxes.

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On the other hand there are some countries with minimal and virtually no income tax at all. Such
countries are either tax havens or they are countries whose economies are highly dependent on natural
resources like oil. The revenues obtained from these oil rich countries stabilise their economies to a
degree that they can do without collecting income tax from their residents.

Countries with zero income tax rates are generally situated in the oil rich Gulf region and the
Caribbean islands. These countries known around the world for being popular destinations for
foreign investors and expatriates.

 Here is a list of some countries without income tax:

United Arab Emirates

This Arab country is highly rich in natural resources like oil and its free trade zones that are open to
foreign ownership and zero taxes make this country a popular destination for global investments.

UAE has zero income taxes for individuals granting them the privilege of tax-free salaries. Corporate tax
is levied only on foreign banks and oil companies leaving other industries tax free. Excise duty is levied
on a handful of goods and services where as Value Added Tax (VAT) is imposed on a majority of goods
from 2018.

UAE also grants the avoidance of Double Taxation on overseas investment to all public and private
companies and other companies operating in the country under the Double Taxation Agreements (DTA).

The Bahamas
This Caribbean country has tax friendly laws which makes it an attractive destination for business
investments and foreign financial institutions. This 'tax haven' does not collect taxes on personal or
corporate income. Corporate taxes are levied on international companies operating in the Bahamas only
if the revenue is derived locally. Other areas that are tax-free include wealth, inheritance and capital
gains. The tax-free income benefits can be enjoyed by the residents of the country irrespective of getting
a citizenship.

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Qatar
This Arab nation grants tax-free personal income to individuals. However, commercial activity is
subjected to company taxation that entails 10 per cent of the company's total state income and has to be
paid annually. A 10 per cent fixed tax rate is exacted from rental income too.

Its tax-free environment and sophisticated infrastructure attract a number of expatriates to this country.
However, expatriates from specific countries including the United States, United Kingdom, Australia,
Canada, Ireland and South Africa are subject to taxes according to the tax laws of their respective
governments.

Kuwait
Anyone residing in Kuwait, irrespective of their nationality, is granted the privilege of tax-free personal
incomes. This essentially means that the Kuwait’s tax law does not define the concept of resident and
non-resident. However, a corporate tax is levied on foreign corporates in the country. These foreign
companies have to pay 15 per cent of their income to the Kuwaiti government.

Monaco
Monaco's personal and business laws related to taxes makes it a well-known tax-haven. It does not
collect taxes from personal incomes of its residents. A person residing in Monaco for six months or
more becomes a resident and is thereafter exempted from paying income tax.

This city state also does not collect taxes on capital gains and net wealth. Residents can enjoy tax-free
property ownership in Monaco, however 1 per cent tax is collected from rented properties annually.

Monaco also does not have a general corporate tax. Only certain types of companies whose profits are
25 per cent or more on their operations existing outside the country gets subject to taxation.

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These tax laws along with a high regard for financial secrecy and data privacy makes this country a
highly appealing destination for expatriates and foreign investors.

Oman
This Gulf nation has lenient and business friendly tax laws. It does not collect taxes on personal incomes
of residents or non-residents. Wealth, capital gains along with property all come under the ambit of these
tax-free laws.

Business and companies are subjected to 15 per cent tax collection on their taxable income. However
companies involved in petroleum operations have to pay a 55 per cent tax. An income tax can be
imposed on expatriates.

Panama
Panama is considered a pure 'tax haven' country with flexible legal structure and tax friendly laws. It
does not impose income taxes on individuals as well as offshore companies. Offshore companies that
engage in business outside the country are granted zero income and corporate tax. However, offshore
companies engaged in business locally will be subject to minimal local taxes.

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Q
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success.
TOOLS FOR TAX PLANNING

Tax planning is the analysis of a financial situation or plan to ensure that all elements work together to
allow you to pay the lowest taxes possible. A plan that minimizes how much you pay in taxes is referred
to as tax efficient. Tax planning should be an essential part of an individual investor's financial plan.
Reduction of tax liability and maximizing the ability to contribute to retirement plans are crucial for

Tax planning is the analysis of a financial situation or plan to ensure that all elements work together to
allow you to pay the lowest taxes possible.

Considerations of tax planning include the timing of income, size, the timing of purchases, and planning
for expenditures.

Tax planning strategies can include saving for retirement in an IRA or engaging in tax gain-loss
harvesting.

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Tax planning tools for Indian taxpayers

Today, in the year 2016-17, the government has provided various schemes in the budget for taxpayers.
Tax planning can be done according to the benefits and the schemes that are beneficial to save tax. Tax
planning can be a good way of investing money by using the schemes provided by the government in
various ways so that people can benefit from the schemes and also pay tax eagerly.

Equity Linked Savings Scheme

Compared to traditional tax saving instruments like Public Provident Fund (PPF), National Savings
Certificate (NSC) and bank fixed deposits; the lock in period of an ELSS fund is much lower. While
ELSS investment is locked in to 3 years, PPF investment are locked in for 15 years, NSC investment is
locked in for 6 years, and bank fixed deposits eligible for tax deduction are locked in for 5 years. As
ELSS is an investment in equity markets and investing in this for a long term can give you better returns
compared to other asset classes over the long term. You can also get income from your investment
amount in the lock in period if you opt for dividend schemes.

Life insurance

Life insurance policy is today, both popular and widely adapted tool for tax saving and also for life
insurance. Various plans are available in life insurance policy as per the requirement of the individual.
The government as well as private companies are participants in life insurance business. For saving
taxes, the section 80C of the income tax act provides benefits like the deduction for a maximum of Rs.
1,50,000 from the total income of the person.

Public provident fund

The public provident fund or the PPF is another popular income tax saving scheme in the country and
provides an investment that provides assured returns along with tax benefits. It is governed by PPFS and

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PPFA. The scheme is available to those who have their own account or has minor children. The maturity
period is 15 years and can be extended up to 5 years.

Residential housing property

This scheme provides tax benefits of different kinds which are important. The maximum deduction
allowed here is Rs. 1,50,000. It is available to individual or HUF. A tax deduction is available for
repayment of the principal amount that has been borrowed in section 80C. The payment of installment
due to the company or other institutions, in which the assesses is member, towards the cost of property
that is allotted to him, Registration fee or stamp duty for transfer of property to the assessee. Deduction
for interest on housing loan is also possible under section 24B where an amount of Rs. 30,000 is
allowable for maintenance of house or the repairs.

Sukanya Samridhi Account

In this scheme tax deduction is an application for up to two to three girls in case of twins in the first case
or second case only. Here one can get a maximum deduction of Rs. 1,50,000. The min. initial deposit is
1000 with another one hundred rupees thereafter with the annual ceiling of Rs. 1,50,000 in a financial
year. The interest rate is 9.20 % w.e.f. the maturity is 21 years from opening the account. The period of
deposits is made up to 14 years from the date of account opening.

Children education

Tax planning and deduction can be done through education of the children. One can get tax exemption
on tuition fee of the children to any university or school or college or other institution in India for the
sole purpose of education.

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Health insurance India

The Medi-claim policy or health insurance in India covers the expenditure towards the medical
treatment and the hospitalization. There are terms and conditions for the policies from different
companies. The tax deduction available is Rs. 15,000 and on senior citizen it is Rs.20, 000.

Considerations

People are aware that they can save tax by investing and proper tax planning in various schemes.
Investment should be made any time of the financial year. On the basis of proof, one can submit the
income tax by the specified date. Those from a business background or professionals are liable to pay
the tax in advance during the financial year. The salaried individual’s tax is deducted at the source
directly from the salary itself. There are different taxes like fixed deposit, house property or the capital
gain. It is you who will have to pay tax on these additional income taxes after doing a perfect tax
planning.

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