The Chamber of Tax Consultants

Transcription

1 The Chamber of Tax Consultants Workshop on Taxation of Foreign Remittances Students, Directors fees, Other income, Artistes & Sportsperson. 14 th December, 2013 Naresh Ajwani Rashmin Sanghvi & Associates Chartered Accountants

2 Students Slide No.: 1

3 Students Payments related to students would include: - Tuition fees. - Travel, stay & maintenance. Payments could be by parents, or by sponsoring institution. Payments could be to student, or the education institution. Slide No.: 2

4 Payments clearly not taxable in student s hands Payments by parents. Payments by institutions covered u/s. 10(23C) & 12AA. [Section 56 will not apply]. Scholarships u/s. 10(16). Slide No.: 3

5 Payments to Foreign Educational Institutions Normally foreign educational institutions would not be liable to tax. - Unless they have a PE in India. Foreign universities arrangements / tie-ups with Indian universities need to be examined independently. Slide No.: 4

6 Residential Status: Students They would not get benefit of stay of 182 days in India under Explanation (a) to S.6(1). University work difficult to say it is employment. If student is a resident of India, his US income is any will be taxable in India. Next year s residential status also gets affected if he comes to India for 60 days or more. Slide No.: 5

7 DTA Rare article applies for relief in country of study (residence). (No relief in country of source). Applies to payments received from sources outside the country in which the student goes to study. Article applies to Student, Business trainee and apprentice. Article applies to payments received for their maintenance, education or training. Slide No.: 6

8 DTA The student should be resident of say India in the year in which he goes, or in immediately preceding year. (He should be a non-resident of the other country.) Most of the articles provide that if the student gets any benefit in the country of study, the same relief will be extended as to a student of that country. Many DTAs provide similar relief to teachers who go to the other country for teaching. Slide No.: 7

9 Student going out of India Normally there are few difficulties. If the costs are paid by a person who is not a relative, then section 56 can apply. The source of gift would be the residence of payer. (Difficult to fall in other income article.) Slide No.: 8

10 Students coming to India They would be exempt from tax in India if source is from outside India. Scholarship relief will be available to such a student whether payer is resident or nonresident. Section 56 will not apply if student falls in this article. Slide No.: 9

11 Directors Fees Slide No.: 10

12 Directors Fees & Remuneration DTA deals with fees & remuneration received by a director as a member of the Board of Directors. The article in some DTAs also deals with remuneration of top-level official. Slide No.: 11

13 Basic Rule U.N. Model 2011: Article 16(1): Directors fees & other similar payments, derived by resident of UK, in his capacity as a member of Board of Directors of an Indian company, may be taxed in India. Slide No.: 12

14 Basic Rule Article 16(2): Salaries, wages & other similar remuneration, derived by resident of UK, in his capacity as an official in a top-level managerial position of an Indian company, may be taxed in India. [Thus under both clauses, India gets the right to tax.] Slide No.: 13

15 Basic Rule Article 16 supersedes Article 15 (salary). Therefore there is no short stay exemption as in article 15(2). There is no requirement of rendering of services in the COS. Activities of director can be performed anywhere. Slide No.: 14

16 Some Indian DTAs Only directors fees are covered. Top level managerial remuneration is not covered - U.K., U.S.A. Top-level managerial remuneration is covered in DTAs with Denmark, France (through protocol & dependent personal services article). Slide No.: 15

17 Directors Fees & Remuneration Meaning of Board of Directors. - Includes a body in charge of supervision of company s management. Fees can be received by an individual or legal person. Slide No.: 16

18 Directors Fees & Remuneration What kinds of incomes are covered? - Directors fees. - Payment in cash or kind received in a capacity as a Director (use of residence, car, etc.) is taxable. - ESOPs also will be taxable in COS. Slide No.: 17

19 Directors Fees & Remuneration Under OECD model, remuneration in other capacities employees, adviser, consultant, etc. is not covered. Article 16(2) is not there. However as per the UN model, such remuneration is covered. Dieter Eberhard Gustav Von Der Mark Advance Ruling (102 Taxmann 368). Only sitting fee was considered to be taxable. Other fees without a fixed base was not taxable. (India- Germany DTA) Slide No.: 18

20 Directors Fees & Remuneration Remuneration as a top-level official. Top level managerial position refers to position which has primary responsibility for general direction of affairs of the company Summary COS gets the right to tax the remuneration fully. Slide No.: 19

21 Other Income under DTA Slide No.: 20

22 Other Income The article applies to incomes not dealt with in any other article. Other income is not defined. It is a residuary clause. It is not the same as income from other sources. Article 21(1) - Country of residence (COR) (say U.K.) is given rights to tax. Country of source (COS) (say India) does not have rights to tax except in limited circumstances. Slide No.: 21

23 Other Income Article 21(2) - If income is attributable to the PE in India, then India may tax the income. (Income from immovable property of the Indian PE, but situated in U.K. is taxable only in U.K.) (See next slide ) Article 21(3) - UN Model If income is arising in India, it may tax the income. Without Article 21(3), other income wherever arising (India or third country) is taxable only in COR. Slide No.: 22

24 Immovable Property of a PE Article 21(2): U.K. Resident India PE Immovable Property India cannot tax income from immovable property. 23

25 Basic Rule U. N. Model Has the income arisen in India? Yes. Taxable in India & U.K. No. Is it attributable to PE in India Yes. Is it income from immovable property situated in U.K.? No. Not taxable in India. Yes. Not taxable in India No. Taxable in India & U.K. 24

26 Basic Rule OECD Model Is it attributable to PE in India Yes. Is it income from immovable property situated in U.K.? No. Not taxable in India. Yes. Not taxable in India No. Taxable in India & U.K. 25

27 Basic Rule U. N. Model Other Income India U.K. Income arising in India. (Not in OECD Model) Income attributable to PE in India. Taxable Taxable Taxable Taxable Income from immovable property in U.K. (even if belonging to the PE). All other incomes. Not Taxable Taxable Not Taxable Taxable 26

28 Other Income Example: Resident of Mauritius receives fees for standing as a surety for a loan given to an Indian resident borrower. The fees are paid by the borrower. The loan is given by an Indian bank in India. It is not business income. Therefore article 7 does not apply. It is not covered by interest article also. Article 22(1) applies. India cannot tax the income. Slide No.: 27

29 Income wherever arising Example: A person is a resident of India and Mauritius. Under tie-breaking rule, he is considered as resident of Mauritius. Income of the person arising in Singapore, is arising in third country. Income wherever arising is not taxable in India in absence of article 21(3). Slide No.: 28

30 Other Income If Other Income article is not there in a DTA, then both countries can tax the income. Example: Prior to 2001 Shipping income as per India Switzerland DTA could be taxable in India. Shipping income was excluded from business income. There was no shipping income article. There was no article for other income. Slide No.: 29

31 Not dealt with India-Switzerland DTA - Between 2001 & 2011 Other income article was inserted. Shipping income was excluded from business income. There was no shipping income article. Shipping income was not dealt with in any clause. It was other income. Taxable only in Switzerland. [After 2011 Business income article amended. Shipping income article was introduced.] Slide No.: 30

32 Not dealt with The phrase not dealt with is different from Not mentioned. Dealt with means more than just mentioned. If other income article refers to income not mentioned in the DTA, it is more difficult to apply other income article. If income is merely mentioned, other income article cannot apply. Slide No.: 31

33 Income arising in source country Income arising in source country is taxable in COS. Some countries provide a limit on the tax. E.g. India Canada DTA restricts the tax to 15% in case of estate or trust. There is no beneficial owner clause. (U.S. Model refers to beneficial ownership.) There is no special relationship clause. Thus excessive payments are still covered under this article. Slide No.: 32

34 What kind of incomes are covered Punitive damages. Non-compete payments. Income from Derivative transaction if persons are not engaged in the business of such products, and the products are not used for hedging business risks. Guarantee fees if it is not regular business of the guarantor. Slide No.: 33

35 Income arising in source country Receipts under 56(2)(vi). Gambling & lottery winnings (if it is not business). Income from units of mutual fund (DLJMB Advance Ruling 228 ITR 268)... The scope of this article is limited. Slide No.: 34

36 Artistes & Sportsperson Slide No.: 35

37 Artistes and Sportsperson DTA article - deals with income of an entertainer & sportsperson, from his personal activities, exercised in the source country. The article supersedes Independent Personal Services article [no need of FB in India]; & Dependent Services article [no short stay exemption - article 15(2).] Slide No.: 36

38 Artistes and Sportsperson Legal entities are also covered. Orchestras, theatres, sports teams are covered by this article. The article deals with artiste company s income also (anti-avoidance rule). The article supersedes Business profits article (no need of PE); Independent Personal Services article, & Dependent Personal Services article. Many DTAs provide that if payment is from public funds of COR, income is not taxable in COS. Slide No.: 37

39 Key requirements Personal activities of a person are exercised in COS. (Legal entities are also covered.) Entertainment characteristics of activities. Public performance. Who pays is not relevant. Slide No.: 38

40 Artiste Artiste is not defined. Examples include theatre, motion picture, radio or television artiste, musician. It should have entertaining character. It should be performance in public, or for the public. Includes singer, dancer, mimicry artiste, magician, circus artistes, etc. Includes side artistes, group artistes. Slide No.: 39

41 Sportsperson Sportsperson is not defined. It includes traditional athletics, & other field sports like cricket, football, car racing. Includes games like chess, billiards, bridge. Some DTAs use the word athletes instead of sportsperson. [e.g. India - U.K., India U.S.A.]. However that should not make any difference. Purpose is to include performance which has entertainment character. Slide No.: 40

42 Artistes & Sportsperson Who are not covered by this article? Administrative & support staff are not covered by this article. [e.g. technician, cameramen, directors, choreographers, make up persons, physicians]. Conference speakers are not covered. Producing works are not covered. Painters, Sculptors, Writers, Composers are not covered. Actors? Slide No.: 41

43 Combined Activity: Artistes & Sportsperson If a person directs & acts in the programme, the predominant purpose has to be seen. Some times incomes may have to apportioned. Incomes earned directly or indirectly both are covered. Government employees are also covered by this article. Slide No.: 42

44 Other related incomes Sponsorship fees if it is linked to the public performance, then it is covered. Advertising fees primarily the fees are not covered in this article. If related to performance, it is covered. It cannot be royalty. Appearance in shows - as anchors or players. Slide No.: 43

45 Other related incomes Playing of records, disks, etc. is not connected to public performance. Article 12 can apply. If performance is recorded, and performer gets royalty on sale of CDs etc., it is royalty. Payment for cancellation of performance not covered by this article. Slide No.: 44

46 Artiste Companies U.K. India Artiste employee Artiste Performance Company India Payment Article 17(2) considers such income as taxable in India. Slide No.: 45

47 Artiste Companies Article 17(2) is an anti-abuse provision. If there is a look through approach in domestic law (GAAR), then it is possible to tax the company even without article 17(2). Company can be situated anywhere not necessarily in the country of performer. Article 17(2) will apply. Slide No.: 46

48 Artiste Companies Employment by the company. Entertainer s salary will be taxable based on what can be attributable to performance. Company s income will also be taxable Summary The article gives the Country of Source full rights to tax income of artistes and sportspersons. Slide No.: 47

49 Sports & Entertainment S. 115BBA Income tax Act - S.115BBA applies to income of: - Sportsman, - Sports association or institution, - Entertainer. All of them should be non-residents. Sports, game or performance should be in India. Slide No.: 48

50 Sports & Entertainment S. 115BBA Gross tax of 20% on income. (No deduction of expenses.) No need to file a tax return if tax is deducted at source and the person has income only u/s. 115BBA. Slide No.: 49

51 Sections 5, 9, 115BBA S.115BBA is not a charging section. Can there be a case to say that income is not covered u/ss. 5 & 9? S. 5(2)(b) Does income accrue in India? S. 9(1)(i) Is there a business connection, or a source in India. Individual performing in India would be income accruing in India. Slide No.: 50

52 Sections 5, 9, 115BBA Rare cases e.g. James Bond (non-resident) gets a lumpsum for acting in a US film from Columbia pictures, USA. 2 days shooting is in India. [Actor does not get relief under Explanation (d) of S.9(1)(i) shooting of film]. Slide No.: 51

53 Sections 5, 9, 115BBA For the actor: Is there a source in India? Is there a business connection? Does income accrue in India? Does income have to be apportioned? Slide No.: 52

54 Lotteries etc. Section 115BB Section applies to residents and non-residents. Winnings from Lotteries, crossword, horse race, gambling or betting, card game or game of any sort is covered. Game of any sort include game show, entertainment programme in which people compete to win prizes. Income u/s. 115BB is taxed as income from other sources. Slide No.: 53

55 Lotteries etc. Section 115BB Tax is 30%. No deduction of expenses. Game of any sort includes game show, entertainment programme in which people compete to win prizes. - Generally not business income. These are hobbies. Business connection may be difficult. However accrual & source will be India. Slide No.: 54

56 Sportsman Section 115 BBA(1)(a) applies to - Sportsman (including an athlete). - he should be a non-resident, and - he should not be an Indian citizen. [Indian citizen is taxable under normal provision on net income.] Slide No.: 55

57 Sportsman He earns income from: - participation in India in any game or sport (other than game covered under S. 115BB). - advertisements, - contribution of articles relating to any game or sports in newspaper, magazines or journals. Slide No.: 56

58 Sportsman Advertisement has no reference to India. Contribution of articles is relating to any sport or game not necessarily about specific event. CBDT circular No. 787 dated : Refers to advertisement or contribution of articles relating to sport or game in India. (These words are not there in the section). Income from advertisement or contribution of article not relating to sport or game in India Not covered by section 115BBA. Slide No.: 57

59 Sports Association Section 115 BBA(1)(b) applies to: - Sports association or institution. - who is non-resident. Income is earned in relation to game or sport played in India, including guaranteed amount. (Game under section 115BB not covered.) Slide No.: 58

60 Entertainer Section 115 BBA(1)(c) applies to - Entertainer, - who is a non-resident, and - who is not an Indian citizen. Income received from performance in India. Entertainer not defined. The term is used in DTA. Slide No.: 59

61 S. 115BB v/s. S. 115BBA S. 115BBA (sports and games) applies to income not covered by S. 115BB (game of any sort). Priority is given to S. 115BB. Cricket: can it be considered as game where people compete to win prizes? - can it be considered as game show, or entertainment programme on TV or electronic mode? Slide No.: 60

62 TDS S. 194E If income is covered under section 115BBA, tax has to be 20%. Otherwise 30%. TDS u/s. 194E is not dependent on income being chargeable to taxable. TDS is on payment or credit of the income. DTA does not apply to TDS. If income is not chargeable, income earner can file a return and claim a refund. Payer can file a return as a representative assessee to claim a refund. Slide No.: 61

63 TDS S. 194B If income is covered under section 115BB, tax has to be 30%. TDS u/s. 194E is also not dependent on income being chargeable to taxable. TDS is on payment or credit of the income. Similar issues as in S. 194E. Application u/s. 197 cannot be made for sections 194B and 194E. Slide No.: 62

64 Income tax clearance certificate S. 230 Person who has income in India in connection with business, profession or employment, is required to obtain a clearance certificate before leaving India. Immigration department would like the persons to leave before visa expiry. Income-tax department would like them to be here till tax is paid! Slide No.: 63

65 Different incomes Preparation and training. Personal endorsements (image, signature, name) rights. Commission income to agent abroad. Reimbursements of transport of equipment of artist. Slide No.: 64

66 Thank you. Questions and comments are welcome. Naresh Ajwani Chartered Accountant Rashmin Sanghvi and Associates Slide No.: 65