June 30, 2016

Disallowance for Failure to Withhold on Outbound Payment Violates India-U.S. Non-Discrimination Clause

June 30, 2016/ Ruchelman P.L.L.C.

To withhold, or not to withhold: that is the question. Neha Rastogi and Nina Krauthamer review the Herbalife case in India that allowed an Indian subsidiary to deduct an administration fee paid to a related parent company for services performed in the U.S. without imposing an obligation on the company to withhold Indian tax. The case, which relates to the tax year 2000 to 2001, has dragged on for many years. In 2004, the law was changed, but the litigation continued.

June 30, 2016

Draft Valuation Rules for Indirect Transfers in India

June 30, 2016/ Ruchelman P.L.L.C.

In May, draft rules were issued in India that implement legislation designed to reverse the holding in the Vodafone case. There, a taxpayer sold shares of an offshore company having as its principal asset shares of a large Indian telecommunication company. When Indian tax authorities attempted to tax the gain of the sale of foreign shares, the Indian Supreme Court held in the taxpayer’s favor and observed that the transaction was beyond India’s territorial tax jurisdiction. The law was changed in 2012, and in 2015, certain valuation benchmarks were set that established when tax would be imposed. Neha Rastogi, Kenneth Lobo, and Nina Krauthamer explain how the value of Indian and global assets will be determined. They also address associated reporting requirements.

June 30, 2016

Income Tax Treaties v. Domestic Law: An International Look at the Current Score

June 30, 2016/ Ruchelman P.L.L.C.

Ask most tax advisers outside the U.S. about the way to resolve a conflict between the provisions of an income tax treaty and domestic law, and the almost universal view is to look to the treaty for resolution. However, in some countries, an income tax treaty is not the last word in resolving conflicts. In the U.S., the saving clause of a treaty preserves the supremacy of U.S. domestic tax rules as they affect U.S. citizens and residents, as defined in the treaty. In Brazil, a presidential decree may govern the outcome. And in India, a domestic tax provision may be crafted in such a way as to circumvent a treaty by altering the identity of the technical taxpayer. Elizabeth V. Zanet, Galia Antebi, and Neha Rastogi examine ways in which those three countries directly or indirectly override treaty provisions that are deemed domestically undesirable.