Divakar Vijayasarathy

Transcription

1 Divakar Vijayasarathy

2 Esops vested to an employee from the US parent while serving at the US After serving for a considerable period of time, the employee moves to India for employment with the subsidiary

3 Esops are now exercised while in service with the Indian company say within the first year. The employee is only a resident and not ordinary resident What are the tax implications

4 Who is supposed to deduct tax on the transaction the Indian subsidiary or the US parent Where is the employee liable to pay tax India or US or in both jurisdictions Can the employee claim the benefit of tax credit under the DTAA

5 An Indian resident is a share holder of a Singapore Company holding 25% equity He receives a loan of USD 2MM from the Singapore as loan. What are the tax implications

6 Sec 2(22)(e) refers to a company in which public are not substantially interested Sec 2(17)(ii) states that any body corporate incorporated by or under the laws of a country outside India is a company

7 A Mauritius company accepted the buyback offer made by an Indian company. As per Article 13 of the DTAA capital gains on share transfer in India is taxable only in Mauritius What are the withholding tax implications

8 The concept of Deemed Dividend does not arise in the event of Buy Back There is no capital gains tax in Mauritius AAR in Re [2012] 207 TAXMAN 285

9 Employee had rendered service outside India ESOPs vested while in service abroad Employee subsequently transferred to India ESOPs exercised while in service in India Is the Indian employer liable to deduct tax

10 Mr A is an employee of ABC Inc US. He has been in US for the past 10 years till During the year he was deputed to India to work with ABC Pvt Ltd a group company While at service in US- in the year he was vested with ESOPs. He exercised these ESOPs in while working in India His status for is RNOR

11 Is ABC India liable to deduct tax on the ESOPs exercised while in service in India

12 What is the nature of receipt for the employee When does it accrue Where does it accrue Where is the service being rendered Is there a tax credit available for the same

13 Sec 2(24)(iii) of the Act, income includes: The value of any perquisite or profit in lieu of salary taxable under section 17(2)/(3) Sec 17(2)(vi) of the Income Tax Act, 1961, perquisites includes: The value of any specified security or sweat equity shares allotted or transferred, directly or indirectly, by the employer, or former employer, free of cost or at concessional rate to the assessee Therefore SO and RSUs received from former employer outside India shall be considered as Income under the head Salaries.

14 Sec 9(1)(ii) Incomes which shall be deemed to accrue or arise in India include: Income which falls under the head Salaries, if it is earned in India Explanation. Income of the nature referred to in this clause payable for (a) service rendered in India; and (b) the rest period or leave period which is preceded and succeeded by services rendered in India and forms part of the service contract of employment, shall be regarded as income earned in India ;

15 ESOPs are taxable in India at the time of allotment irrespective of the date of vesting. Further the allotment was made by the Foreign Company under an ESOP Scheme that provides for continuing employment with the Foreign Company or any other company as may be decided by such Foreign Company. Since the employee was rendering service in India on behalf of the Foreign Company or at the behest of the Foreign Company, in a company determined by the foreign company or its group headquarters, at the time of allotment of SOs and RSUs, it may be deemed to be income accruing in India and consequently taxable in the hands of the employee.

16 If the payments of Home Salary abroad by the Foreign Company to the expatriate has any connection or nexus with his rendition of service in India then such payment would constitute income which is deemed to accrue or arise to the recipient in India as salary earned in India in terms of Section 9(1)(ii) (which is one of the heads of income) Eli Lilly and Co. (India) P. Ltd. (2009) 312 ITR 225 (SC)

17 During FBT regime: Circular No 9/2007 (annexure III), states that where ESOPs accrue partly for the period of service in India and partly outside India, income for the purposes of Fringe Benefit Tax shall be split proportionately based on the respective periods of service during the Grant Period. Hence it was taxable for the proportionate grant period in India

18 Grant Period has been defined to be the period beginning from the date of grant of the option till the date of vesting.

19 ESOPs are taxable at the time of allotment Salary is taxable if services are rendered in India irrespective of the place of receipt ESOPs granted abroad but exercised while in service in India may be outside the ambit of taxation (interpretation of circular 9/2007- FBT) Hence ESOPs may not be chargeable in India Alternative stand possible Conservative Approach

20 - Assessee is a builder engaged in real estate development. - He enters into a Joint Venture with a non resident for development of a property owned by him. - Consideration is agreed to be a 50% share in built up area which is payable as cash on realization of the property

21 - Agreement is entered into in Year 1 - Agreement gives the assessee (builder) the possession over the property. - No consideration is however paid- but the same is promised to be paid later upon completion. - Development happens in Year 2. - Property is sold in Year 3 and consideration is also paid in Year 3.

22 Issues: - When does capital gains accrue to the nonresident? - What is the liability of the builder (assessee) on the transaction? - When is the withholding tax payable on this transaction u/s 195?

23 Analysis - The assessee (builder) in India is considered as an agent u/s 163(1) - The assessee does not make any payment in the first two years of the transaction - However according to Sec 2(47)(v) read with Sec 53A of Transfer of Property Act the transaction amounts to transfer.

24 Conclusion: - Capital gains arises in Year 1 - The assessee (builder) is liable to deduct tax in Year 1 itself even though consideration is payable only in Year 3 The issue complicates where the consideration is payable in the form of share in Built Up Area Bombay High Court in Chaturbhuj Dwarkadas Kapadia ( ITR 491 Bombay), CIT v Geetadevi Pasari ( DTR 280 Bombay) Jasbir Singh Sarkaria ( ITR Divakar 196 Vijayasarathy AAR & Associates

25 TDS on Cost reimbursements TDS on software purchase under the new definition TDS on FTS with respect to the concept of make available TDS on salary paid to seconded employees

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