Transfer Pricing Provisions & Cross Border Issues

Transcription

1 Transfer Pricing Provisions & Cross Border Issues Seminar on Budget Demystified (Direct Tax) on Saturday, 19 th May, 2012 CA Manoj Shah Partner

2 Introduction Aimed at expansion of tax jurisdiction Retrospective amendments to clarify the intention of the legislature Plethora of stringent provisions Overruled landmark judicial pronouncements 2

3 Section 9 (1) (i) Transfer of a capital asset situated in India

4 Existing Provision all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India, or through the transfer of a capital asset situate in India 4

5 Amendment Explanation 4 & Explanation 5 shall be inserted in Section 9(1)(i) and shall be deemed to have been inserted with effect from 1 st April 1962: Explanation 4 For the removal of doubts, it is hereby clarified that the expression through shall mean and include and shall be deemed to have always meant and included by means of, in consequence of or by reason of. Explanation 5 For the removal of doubts, it is hereby clarified that an asset or a capital asset being any share or interest in a company or entity registered or incorporated outside India shall be deemed to be and shall always be deemed to have been situated in India, if the share or interest derives, directly or indirectly, its value substantially from the assets located in India. 5

6 Judicial Decisions Overruled Vodafone International Holdings B.V. The Apex Court ruled that the words directly or indirectly in Section 9(1)(i) go with the income and not with the transfer of a capital asset (property). The Judiciary held that if indirect transfer of a capital asset is read into Section 9(1)(i), then the words capital asset situated in India would be rendered nugatory. Thus, it was clarified that the legislature has not chosen to extend Section 9(1)(i) to indirect transfers. It was further observed that the words underlying asset do not find place in Section 9(1)(i). 6

7 Analysis of Explanation 4 Due to insertion of words by means of, in consequence of or by reason of, each indirect transfer shall be captured within the purview of Section 9(1)(i). The amendment is an attempt of expand the Indian taxing jurisdiction by including indirect transfer of domestic shares/ controlling interest by non-resident entities. In a typical multi-level corporate structure where funds are indirectly routed to India, capital gain on account of an Indirect transfer of assets or capital asset situated in India shall be deemed to accrue or arise in India and hence taxable 7 in India.

8 Analysis of Explanation 5 The new provision aims at expansion of the coverage of the term capital asset situated in India in section 9 by providing a deeming fiction. This amendment is on the same footing of the proposed Direct Tax Code provisions which proposes to tax transfer of foreign company shares by a non-resident, where the FMV of the assets in India represents at least 50% of the FMV of all assets owned by the company. However, no such specific % or definition of the term substantial value derived from assets located in India is yet elucidated in the amendment. This amendment supports the doctrine of Section 9 which codifies source rule of taxation wherein the state, where the actual economic nexus of income is situated, has a right to tax the income irrespective of the place of residence of the entity deriving the income. 8

9 Related Amendments Explanation to Section 2(14) - Definition of capital asset : For the removal of doubts, it is hereby clarified that property includes and shall be deemed to have always included any rights in or in relation to an Indian company, including rights of management or control or any other rights whatsoever. This amendment is also directed to overrule observation in case of Vodafone, wherein it has been held that the capital asset transferred were the shares of a foreign company and transfer of controlling interest is not a capital asset in itself but is incidental to transfer of shares. After the amendment, transfer of shares (at any level) which result in transfer of controlling interest of an Indian Company could give rise to a taxable event in India. 9

10 Related Amendments Explanation 2 to Section 2(47) - Definition of transfer : For the removal of doubts, it is hereby clarified that transfer includes and shall be deemed to have always included disposing of or parting with an asset or any interest therein, or creating any interest in any asset in any manner whatsoever, directly or indirectly, absolutely or conditionally, voluntarily or involuntarily, by way of an agreement (whether entered into in India or outside India) or otherwise, notwithstanding that such transfer of rights has been characterised as being effected or dependent upon or flowing from the transfer of a share or shares of a company registered or incorporated outside India Thus, transfer would include indirect transfer of shares if rights in such shares are effected and dependent upon transfer 10 of shares even of a foreign company.

11 Explanation 2 to Section 195: Related Amendments Explanation 2 For the removal of doubts, it is hereby clarified that the obligation to comply with sub-section (1) and to make deduction thereunder applies and shall be deemed to havealways applied and extends and shall be deemed to have always extended to all persons, resident or non-resident, whether or not the nonresident person has (i) a residence or place of business or business connection in India; or (ii) any other presence in any manner whatsoever in India. The amendment widens the withholding tax provisions of Section

12 Future Implications The retrospective changes due to aftermath of Supreme Court judgment, would have far reaching impact in many such pending cases before various judicial forums. However, it has been announced by the Hon. Finance Minister that the retrospective amendment will not affect deals in which assessment has been closed or the ones routed through the 82 countries with which India has DTAAs, U3i.e. retrospective clarificatory amendments shall not override DTAA. The amendment will impact the business restructuring events like merger of offshore holding or investment companies of MNCs having substantial assets in India 12

13 Slide 12 U3 It would impact those cases where the transaction has been routed through low tax or no tax countries with whom India does not have a DTAA User, 5/14/2012

14 Future Implications "The total tax implication in consequence of retrospective amendments introduced in the Finance Bill may be 35,000-40,000 crore - Minister of State for Finance SS Palanimanickam. The Economic Times dt. 10 th May,

15 Future Implications The proposed amendment is also not clear as to how such capital gains income is to be computed under the provisions of the Income Tax Act, 1961 FM brought out that investors of Participatory Notes (PNs) would not attract capital gain tax under Section 9(1)(i). However, no such specific relief has been provided to FII Funds as of now - The Economic Times dt. 11 th May, 2012 It is observed that introduction of such provisions is a global trend and several countries like China, Peru and Indonesia have brought in such amendments. 14

16 Illustration Ind.Co. FII Fund A 1 B 1 A 2 B 2 A 3 B 3 A 4 B 4 Overseas Investors A1, A2, A3, A4 are overseas investor holding units in a FII which has invested in Ind.Co. in India. In a year, investor A1, A2, A3, A4 transfer units of the fund to other overseas investors B1, B2, B3, B4. In the absence of any threshold for substantial interest, such overseas transfers result into indirect transfer within Section 9(1)(i) Thus, in effect of transfer of units of FII fund, the overseas investors A1, A2, A3, A4 would be liable for tax in India!!! 15

17 Position under Treaty for Indirect Transfer Controlling Interest India- UAE Tax Treaty- Revised Article on Capital Gains as per Protocol of 2007 Paragraph 3 of Article 13 (Capital Gains) of the Agreement shall be replaced by the following: "3.Gains from the alienation of shares of the capital stock of a company the property of which consists directly or indirectly principally of immovable property situated in a Contracting State may be taxed in that State. 4.Gains from the alienation of shares other than those mentioned in paragraph 3 in a company which is a resident of a Contracting State may be taxed in that State. 5.Gains from the alienation of any property other than that referred to in paragraphs 1, 2, 3 and 4 above shall be taxable only in the Contracting State of which the alienator is a resident." 16

18 Section 9 (1) (vi) Taxation of Royalty

19 Existing Provision Section 9(1)(vi) provides that any income payable by way of royalty in respect of any right, property or information is deemed to be accruing or arising in India. The term royalty has been defined in Explanation 2 which means consideration received or receivable for transfer of all or any right in respect of certain rights, property or information. Definition of Royalty has been a subject matter of conflicting judgments delivered by the judiciary. Therefore, in order to avoid series of litigations and establish synergy, amendments have been brought out. 18

20 Amendments Explanation 4, 5 & 6 shall be inserted in Section 9(1)(vi) and shall be deemed to have been inserted with effect from 1 st June 1976: Explanation 4 For the removal of doubts, it is hereby clarified that the transfer of all or any rights in respect of any right, property or information includes and has always included transfer of all or any right for use or right to use a computer software (including granting of a licence) irrespective of the medium through which such right is transferred. 19

21 Amendments Explanation 5 For the removal of doubts, it is hereby clarified that the royalty includes and has always included consideration in respect of any right, property or information, whether or not a) the possession or control of such right, property or information is with the payer; b) such right, property or information is used directly by the payer; c) the location of such right, property or information is in India. Explanation 6 For the removal of doubts, it is hereby clarified that the expression process includes and shall be deemed to have always included transmission by satellite (including up-linking, amplification, conversion for down-linking of any signal), cable, optic fibre or by any other similar technology, whether or not such process is secret;. 20

22 Judicial Decisions Explanation 4 DECISIONS OVERRULED DIT v. Ericsson AB [2011] 16 taxmann.com 371 (Delhi) It was held that Software which was imbedded in the mobile telephone system was an integral and inseparable part of the system. Such software was incapable of independent use and the cellular operator did not receive any copyright. Thus, Delhi High Court ruled that Computer Software being a copyrighted product and a copyright itself can not be considered as Royalty Tata Consultancy Services v. State of AP ITR 401 (SC) 21

23 Judicial Decisions Explanation 4 DECISIONS CONFIRMED Gracemac Cpropration v. Assistant Director of Incometax [2010] 42 SOT 550 It was held the payments made by end users for granting of license in copy right and other intellectual property rights was payment of royalty. It was also held that by way of a copyrighted article, the end uses had not purchased copy of software product, but a license to use such software products. CIT v. Samsung Electronics Co.Ltd. [2011] 16 taxmann.com 141 (Karnataka HC) 22

24 Analysis of Explanation 4 A general understanding of definition of 'Royalty' provided in Explanation 2 of the Section 9(1)(vi) can be accepted to include 'computer programme', being an intellectual property but not 'computer software'. This amendment seeks to resolve controversy regarding whether use of computer software is royalty or not which has arisen due to contrary judiciary pronouncements. However, It may be argued that an explanation can only explain and may not expand or add to the scope of the original section, however a clarificatory amendment - to justify that computer software was very much covered under definition of royalty from inception - has widened the scope of main section. A mere right to use a shrink-rapped/ off-the-shelf software by the end user would also get covered within the ambit of Section 9(1)(vi) on account of this amendment. 23

25 Future Implication - Explanation 4 With this amendment tax will have to deducted under section 194J in respect of resident payees and under section 195 in respect of non-resident payees on payments made for purchase of computer software. It would result into a cascading effect of taxation as every user at every stage in distribution chain would be subject to Section 9(1)(vi). An estimate of around. 10,000 crores increase in taxes is envisaged from the retrospective amendment in the context of computer software. The only resort that can be sought is scope of 'Royalty' in DTAA. However, DTAAs with Malaysia, Russia, Morocco etc. do cover computer software within the term 'Royalty'. 24

26 DECISIONS OVERRULED Asia Satellite Telecommunications Co. Ltd. v. DIT [2011] 197 Taxmann 263 Customers merely given access to broadband available in transponder. Judicial Decisions - Expl. 5 & 6 Control and constructive possession pf transponders could not be handed over by satellite operators to its customers. Thus, it was held that satellite payments received by foreign satellite companies can not be regarded as Royalty and hence such income is not taxable in India. ISRO Satellite Centre [307 ITR 59] (AAR) Dell International Services India (P) Ltd. [305 ITR 37] (AAR) DECISIONS CONFIRMED New Skies Satellite N.V. v. ADIT [121 ITD 1] (Delhi)(SB) Verizon Communications Singopore Pte.Ltd. v. ITO (54 DTR 65) (Chennai) (Tri) 25

27 Analysis - Expl. 5 & 6 The term Royalty would now include any consideration in respect of any right, property or information, whether or not its possession or control is with the payer, it is used directly by the payer, or its location in India. It is directed to counter the position adopted by the tax payers, based on various judicial precedents, to treat income in respect of right, property or information as business income on reasoning of no direct use, location outside India, etc. With this amendment will tax have to deducted under section 194J in respect of resident payees and under section 195 in respect of non-resident payees payment of bills of mobile phones, leased lines, internet charges, DTH charges and such other charges will come under the ambit of TDS?. 26

28 Future Implications - Expl. 5 & 6 Transactions targeted: Data processing support and disaster recovery etc. Income from lease of Transponder in satellite and bandwidth in fibre optic network Roaming charges Agreement and payment of spectrum licence Use or right to use Transponder capacity in satellite and bandwidth capacity in fibre optic network Uploading and access to web portals, web servers of the foreign companies Rights viz. satellite signals, transmission of voice/data locating outside India Up-linking, amplifying and down linking of signals will come under the definition of process, irrespective of whether or not such process is secret 27

29 Transfer Pricing

30 Advance Pricing Agreement Introducing scheme of APA through Section 92CC & 92CD As the words suggest- it is an agreement between tax payer and taxing authority It s an agreement to either determine ALP or manner of determining ALP for a set of transactions It shall be binding on the taxpayer and Commissioner including authorities subordinate to him. Agreement to loose its binding nature in case of change in law or facts having bearing on the agreement Agreement to have validity period of 5 consecutive previous years Agreement to turn void ab initio if obtained by fraud or misrepresentation 29

31 Advance Pricing Agreement A modified return to be furnished within 3 months Effective from 1 st July 2012 Board to prescribe a framework for APA More clarity needed in terms of: Time frame to conclude an APA Amount of pre-filing of APAs Considering the proposed nature of APAs, it believed that the scheme of APA would lessen the burden of compliance due to greater certainty regarding their TP methods and also advance resolution of the issues 30

32 Widening the scope of International Transaction Explanation added to Section 92B to expand the scope of International Transaction. International Transaction arising from use & transfer of intangible property substantially enlarged by defining intangible property introducing many new items like - customer list, Marketing Channel, brand, commercial secret, know-how, industrial property right, exterior design, exterior design or practical and new design or any other business or commercial rights of similar nature marketing related, technology related, artistic related, data processing related, engineering related, customer related, contract related, human capital related, location related, goodwill related, methods programs, forecasts etc. 31

33 International Transaction arising from use & transfer of tangible property amplified with many specific items being covered Capital financing including guarantee Transactions of business restructuring Impact: Widening the scope of International Transaction Provision of list of intangibles & its wide definition would have significant impact on characterization of entities while analyzing FAR. Specific inclusion of Guarantee will make the Tribunal s decision void which regarded, Guarantee as not in the nature of Intl. transaction. (Four Soft Limited vs. Dy. CIT, ITA No. 1495/HYD/2010 ) 32

34 Reducing tolerance limit from 5% to 3% Presently, in case the variation between ALP and TP doesn t > 5% of the latter, the price at which international transaction, has actually been carried out shall be deemed to be ALP Finance Act, 2012 has substituted 5% with 3% w.e.f A.Y The amendment would is applicable to all assessments or reassessment proceedings pending before AO as on 1 st day of October, % not available as a standard deduction [Sub-section (2A) of Section 92C Retrospective from 1 st April, 2002] The amendment would lead to higher adjustment consequently increased litigations 33 and

35 Failure to report International Transaction Sub-section (2B) of Section 92CA If TP report under Section 92E is not furnished in respect of any international transaction, such transaction shall be automatically referred to TPO [Retrospective from 1 st June, 2002] Penalty provisions A penalty of 2% of the value of the international transaction shall be levied for failure to report any international transaction or maintenance/furnishing of any incorrect information/ document [w.e.f. 1 st July, 2012] Income escaping assessment All cases wherein an international transaction has not been reported by the taxpayer would be considered as a case of deemed escapement of income and such a case will be reopened. [w.e.f. 1 st July, 2012] 34

36 Appeal against DRP Income tax department has been granted a right to appeal against the directions of DRP vide Section 253 and 254 Applicable for objections filed on or after 1 st July, 2012 Dispute Resolution Panel (DRP) With this amendment, results in the favor of assessee can be expected in future The amendment places CIT (A) route and DRP route on the same footing with only differences being in terms of payment of demand, time involved, etc. Search and seizure - Similar to the other assessments, the time limit for completion of assessments involving search and seizure will also be as per the provisions relating to the DRP and that the other provisions of time limit will not apply to such assessments. 35

37 DRP other amendments Extension of power of DRP [Explanation to Section 144C] Till now the DRP has power to confirm, reduce or enhance the variations proposed in the draft assessment order. It has been clarified that DRP has the powers to consider an issue arising out of the audit proceedings relating to the draft order [Retrospective from 1 st April, 2009] The FB 2012 further proposes an exclusion of orders passed by the tax officer pursuant to the DRP directions, from the jurisdiction of the CIT (A) and provides for filing the appeal directly with ITAT in such cases. These amendments will be effective retrospectively from 1 October Assessment timelines - The due date for completion of a transfer pricing assessment is extended by 3 months. AP assessments for AY , need to be completed by 31 January

38 Specified Domestic Transaction (SDT)

39 Brief Background The Finance Bill 2012 edict the applicability of TP Regulations to "specified domestic transactions from F.Y The existing provisions providing for tax holiday & related party transactions paid emphasis on fair market value or market value of the transactions. However, in the absence of specific guidelines for computation of such value of goods and services, much was left to the discretion of both taxpayers and Revenue, thus leading to ambiguity and litigation. This amendment is based on the observations of the Supreme Court in case of CIT vs Glaxo Smithkline Asia (P) Ltd. Hence a recommendation was made by the court so as to Transfer Pricing Provisions should be extended to domestic transactions to reduce litigation 38

40 Specified Domestic Transaction Sub-section (2A) has been inserted in Section 92 w.e.f. 1 st April, 2013: Any allowance for an expenditure or interest or allocation of any cost or expense or any income in relation to the specified domestic transaction shall be computed having regard to arm s length price Few illustrations of such Transactions: Purchase/sale of goods & services Payment to Directors Loans granted/availed Reimbursement/Recovery Services Corporate and administrative Services 39

41 Introducing Transfer Pricing to Domestic Transactions Certain Transactions (Specified Domestic Transactions- SDT) to undergo test of Arm s Length Price Sec 92 (BA) being introduced Transactions specified arei. Any expenditure in respect of which payments is made/to be made to a person referred to in clause (b) of sub-section (2) of section 40A; ii. any transaction referred to in section 80A; 40

42 Introducing Transfer Pricing to Domestic Transactions iii. Taxpayers claiming deductions for undertaking engaged in specified business activities[under Section 80- IA etc of ITA] iv. Taxpayers operating in Special Economic Zones (under Section 10AA of ITA); and v. any other transaction as may be prescribed, The provisions apply only if the aggregate amount of such transaction exceed Rs.5.00 crores during a F.Y. 41

43 Assessee Individual Company Firm Related Entities u/s 40A(2)(b) Related Party Any Relative Any Director of the company Partner of the firm AOP Member of the Association or family HUF or any relative of such Director, Partner or Member In Case of Substantial Interest in the Business & Profession of the Assessee held By: Individual Any Relative Such Any Company Company Director of the company Firm Firm Partner of the firm Member of the Association or AOP,HUF AOP, HUF family *or any relative of such Director, Partner or Member Director of the company Partner of the firm Member of the Association or family Director (he himself) of the company Partner of the firm Member of the Association or family *or any relative of such Director, 42 Partner or Member

44 Definition of Related Party Expanded in Sec 40A(2)(b) Sub-Clause (iv) is modified by adding words- or any other company carrying on business or profession in which the first mentioned company has substantial interest This would bring under purview transactions between subsidiaries of common parent company holding more than 20% in both the Companies. 43

45 Sections Covered under SDT Subsection 8 of Section 80- IA( Inter unit trf of goods/services of the tax payer claiming tax holiday) Section 40A(2)(b) payments to specified related parties Domestic Transfer Pricing Regulations Subsection 10 of Section 80- IA (Trf of goods/services from the unit of tax payer claiming tax holiday to a person with close connection) Chapter VI-A or Section 10AA (where provisions of Section 80IA are applicable) 44

46 Transactions included as SDT Section 40A(2b) 80A Transactions/Examples Payments to Relatives: Powers to the assessing officer to disallow unreasonable expenses or payments made to related parties. However there was no criteria for estimating the reasonableness of the transaction This Sec prescribes certain conditions to be applied while computing deduction from GTI. AO is empowered to recompute income (based on FMV) of the undertaking, provided there are tr. With related parties or other undertakings of same entity Implication of Amendment on Sections covered under SDT The application of the arm s length standard to domestic intra group transactions or with related parties in goods or services with units/ undertakings/enterprises eligible for certain income tax deductions will ensure that companies do not misuse the deductions by undertaking non arm s length transactions in order to increase the profits eligible for income tax deductions or increasing losses. 45

47 Section 80-IA Sub section 8 of Section 80-IA Sub section 10 of Section 80-IA Transactions included as SDT Deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc Goods or services held for the purposes of the undertaking or unit or enterprise or eligible business are transferred to any other business carried on by the assessee- Consideration received should be at the market price It appears to the Assessing Officer that, owing to the close connection between the assessee carrying on the eligible business and any other person the course of business between them is so arranged that the business transacted between them produces to the assessee more than the ordinary profits the Assessing Officer shall, in computing the profits and gains of such business for take the amount of profits as may be reasonably deemed to have been derived therefrom. The application of the arm s length standard to domestic intra group transactions or with related parties in goods or services with units/ undertakings/enterprises eligible for certain income tax deductions will ensure that companies do not misuse the deductions by undertaking non arm s length transactions in order to increase the profits eligible for income tax deductions or increasing losses. 46

48 Analysis of Amendment Deterrent for shifting of profits from a profit making entity to a loss making entity There is no provision for Corresponding Adjustment i.e. it will lead to Double Taxation The penal consequences currently applicable to transfer pricing regulations are also applicable to SDT. The due dates for filing remains the same as applicable to Transfer Pricing Audits i.e. 30 th November. Tax Payers will have to formalize their product pricing within group as detailed documentation would be needed as a part of compliance It would be possible for such taxpayers to utilize TP concepts and methodologies (such as FAR analysis, benchmark driven pricing) for both commercial as well as taxation purposes. Benchmarking would pose problems for certain transactions such as Director s remuneration 47

49 Procedural Aspects for SDT Documentation: The taxpayers have also to maintain the documentation as mentioned in section 92 D and obtain report in Form 3CEB from the Accountant as per the provisions of Sec 92E. Compliance: File form 3CEB along with their return (Sec 92E). Methods: Follow the Transfer Pricing Methods as applicable to determine the ALP. Penal Provision: Be subject to penal provisions as provided U/s 271AA, 271G, 271BA and 271(1)(c). 48

50 Other Amendments

51 Tax Residency Certificate Sub-section (4) to Section 90 has been inserted w.e.f. 1st April, 2013 to ensure that only actual tax residents are entitled to the benefits of DTAA Tax Residency Certificate (TRC) must to avail DTAA benefits TRC of a resident of a foreign country shall contain particulars of his being a resident of such foreign country It should be obtained by foreign resident from the Government of his tax resident country Section 90A has also been amended accordingly [Sub-section (4)] However, TRC not sufficient condition to claim treaty benefits 50

52 Powers to define Terms not defined in DTAA or ITA Explanation 3 to Section 90 & 90A has been inserted to enable the Indian Government to notify definition for the terms which are used but not defined in DTAA or ITA (from the date on which the DTAA came into force) 51

53 Assessments where info. sought under a DTAA Extension of time limit for completion of assessment or reassessment where information is sought under a DTAA Provisions of Section 153 and 153B state that the time taken in obtaining information U5 (form foreign tax authorities) shall be excluded from the time prescribed for completion of assessment or reassessment in the case of an assessee. This period of exclusion is has been extended from 6months to one year [w.e.f 1 st July, 2012] This time period to be excluded would start from the date on which the process of getting information is initiated by making a reference by the competent authority in India to the foreign tax authorities and end with the date on which information is received by the Commissioner. 52

54 Slide 52 U5 During the course of assessment proceedings, in the case of an assessee having income or assets outside India, information is being sought from the tax authorities situated outside India, while completing an assessment. User, 5/18/2012

55 Taxation of a non-resident entertainer, sports person etc. Section 115BBA increase in taxation rate from 10% to 20% of the gross receipts [w.e.f. 1st April, 2013] Section 194E dealing with withholding of tax has been amended accordingly Persons covered under aforesaid section Non-resident non-citizen sportsmen Non-resident non-citizen entertainer such as theatre, radio or television artists and musicians Non-resident sports associations This is bring consistency in provisions with DTAA wherein there is parity between a non-resident sportsman and a non-resident 53

56 GAAR Indian provisions are on the lines of South African GAAR However, while drafting GAAR provisions, the emphasis is solely on tax saving, rather than distinguishing between legitimate Tax Planning vs. Tax Evasion The Indian provisions, in present form disregard, the relevant facts & circumstances leading to a particular arrangement 54

57 Indian provision: GAAR Sec 96(2) An arrangement which results in any tax benefit (but for the provisions of this Chapter) shall be presumed to have been entered into, or carried out, for the main purpose of obtaining a tax benefit unless the person obtaining the tax benefit proves that obtaining the tax benefit was not the main purpose of the arrangement. South African provision: Sec.80G (1) An avoidance arrangement is presumed to have been entered into or carried out for the sole or main purpose of obtaining a tax benefit unless and until the party obtaining a tax benefit proves that, reasonably considered in light of the relevant facts and circumstances, obtaining a tax benefit was not the sole or main purpose of the avoidance arrangement. 55

58 CA Manoj Shah 56