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India Unveils Latest Direct Tax Code Proposals

Friday, April 4, 2014

Higher taxes on the wealthy and changes to the tax treatment of multinational companies feature among the proposals in the latest draft Indian Direct Taxes Code (DTC).

The Government has announced that it has accepted 153 of the 190 recommendations made in 2012 by parliament's Standing Committee on Finance (SCF). A further 61 suggestions were forwarded by the SCF at a later stage, some of which have also been accepted for incorporation in the revised Code. The Government says that it agrees with the SCF that simplicity is paramount, and that the legislation must be user friendly. It hopes to modernize all tax operations, and assure that its departments are capable of carrying out their work as assigned.

Under the Government's original DTC proposals, indirect transfers would have been taxed in India if the companies involved had at least 50 percent of their assets in the country. The Government has since concluded that this threshold is too high. According to a document available on the Income Tax Department's website, "There could be a situation [where] a company has 33.33 percent assets in three countries but it will not get taxed anywhere." The revised code accordingly provides for a 20 percent threshold. An exemption would be provided for the transfer of small shareholdings outside India.

Another major change relates to the wealth tax system. The amended code is intended to capture all assets in the wealth tax net, whether physical or financial. As the wealth tax provisions of the 2010 DTC Bill related only to unproductive assets, the Government grew concerned that the changes would substantially reduce the tax base. Under the latest plans, wealth tax would be levied on all individuals, Hindu Undivided Families (HUFs), and private discretionary trusts at a 0.25 percent rate. The threshold would stand at INR500m (USD8.35m).

The Government says that it will not go ahead with the SCF's recommendation for altered personal income tax slabs. These would have seen incomes of up to INR300,000 exempted from income tax. Those between INR300,000 and INR1m would have been taxed at 10 percent, those between INR1m and INR2m at 20 percent, and those above INR2m at 30 percent. The Government calculated that it stood to lose in the region of INR600bn from these changes. A new 35 percent income tax bracket would be introduced, however, for all income exceeding INR100m a year. The rate is up from the 30 percent previously under consideration.

The Code's implementation has been postponed numerous times. An initial draft was released in August 2009, and was designed to consolidate and amend the laws relating to all direct taxes. After a consultation period, a revised version was published in June 2010. It was however heavily criticized by the bodies appointed to review it. The Kelkar Committee warned that the DTC was "likely to result in considerable unacceptable losses on a continuing basis. Given the low tax-GDP ratio and the existing fiscal crisis, there is absolutely no fiscal space for such [a] large revenue loss."

The situation has been further complicated by subsequent changes to the Income Tax and Wealth Tax Acts. According to the Government, incorporating these reforms into the 2010 DTC legislation would require a large number of official amendments that would ultimately make the bill incomprehensible and the legislative process cumbersome.

In spite of the recent progress, the future of the DTC still hangs in the balance; India's general election begins next week. The ruling Congress-led Progressive Alliance is widely expected to lose out to a coalition headed by the Bharatiya Janata Party.

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Offshore Trusts Guide: Introduction

The History of Offshore Trusts
Development of Professional Competence in the Jurisdictions
What Future for the Trust?
The New Age of Transparency
The Swiss Association of Trust Companies
The Society of Trusts and Estates Practitioners

Offshore Trusts Guide: Jurisdictions

Bahamas

Bahamas: Legal Framework and Formation Rules and Fees
Bahamas: 2006 Private Trust Companies Legislation

Barbados

Barbados: Legal Framework and Formation Rules and Fees
Barbados: Supervisory and Licensing Regime and Fees

Bermuda

Bermuda: Legal Framework and Formation Rules and Fees
Bermuda: Supervisory and Licensing Regime and Fees

British Virgin Islands

British Virgin Islands: Legal Framework and Formation Rules and Fees
British Virgin Islands: Special Trusts Act 2003
British Virgin Islands: The Trustee Act 2003
British Virgin Islands: :Supervisory and Licensing Regime and Fees
British Virgin Islands: New Laws on Private Trust Companies
British Virgin Islands: New Private Trust Company Regulations

Cayman Islands

Cayman Islands: Legal Framework and Formation Rules and Fees
Cayman Islands: Supervisory and Licensing Regime and Fees

Cook Islands

Cook Islands: Legal Framework and Formation Rules and Fees
Cook Islands: Supervisory and Licensing Regime and Fees

Cyprus

Cyprus: Legal Framework and Formation Rules and Fees
Cyprus: Supervision, Licensing and Tax

Gibraltar

Gibraltar: Legal Framework and Formation Rules and Fees
Gibraltar: Legislation, Regulation and Supervision

Guernsey

Guernsey: Legal Framework and Formation Rules and Fees
Guernsey: Trusts Law 2007

Isle of Man

Isle of Man: Legal Framework and Formation Rules and Fees
Isle of Man: Supervisory and Licensing Regime
Isle of Man: Uses Clients and Tax Treatment

Jersey

Jersey: Legal Framework and Formation Rules and Fees
Jersey: Supervisory and Licensing Regime
Jersey: Trusts Amendment Act 2006
Jersey: Foundations

Liechtenstein

Liechtenstein: Legal Framework and Formation Rules and Fees
Liechtenstein: Regulation Supervision and Transparency
Liechtenstein: Characteristics of Liechtenstein Trusts
Liechtenstein: Foundations

Madeira

Madeira: Legal Framework and Formation Rules and Fees

Malta

Malta: Legal Framework and Formation Rules and Fees
Malta: The Trust and Trustees Act 2004

Mauritius

Mauritius: Legal Framework and Formation Rules and Fees
Mauritius: Characteristics of the 2001 Trusts Act
Mauritius: Additional Provisions of the 2001 Trusts Act
Mauritius: Tax Treatment

Monaco

Monaco: Legal Framework and Formation Rules and Fees

Nevis

Nevis: Legal Framework and Formation Rules and Fees

Panama

Panama: Legal Framework and Formation Rules and Fees
Panama: Requirements for Acting as Trust Company in Panama

Seychelles

Seychelles: Legal Framework and Formation Rules and Fees

Turks & Caicos

Turks & Caicos: Legal Framework and Formation Rules and Fees
Turks & Caicos: The Voidable Dispositions Ordinance

Vanuatu

Vanuatu Legal Framework and Formation Rules and Fees




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