Reserve Bank of India tightens norms for issue of Rupee-Denominated Bonds (or Masala Bonds) overseas Bookmark has been added
Reserve Bank of India tightens norms for issue of Rupee-Denominated Bonds (or Masala Bonds) overseas
Global Tax Update : July 2017 / India
This newsletter explains 5 topics including " Reserve Bank of India tightens norms for issue of Rupee-Denominated Bonds (or Masala Bonds) overseas ". (Global Tax Update:July 2017/India)
1. Reserve Bank of India tightens norms for issue of Rupee-Denominated Bonds (or Masala Bonds) overseas
In 2015, Reserve Bank of India (RBI1) permitted Indian entities to issue Rupee-Denominated Bonds (RDBs)/ Masala bonds overseas, so as to access funds from foreign investors in Indian currency. With a view to align the various elements of the External Commercial Borrowings (ECB) framework, RBI has, on 07 June 2017, made amendments2 to the provisions in respect of maturity period, all-in-cost ceiling and recognized lenders (investors) of RDBs.
1. India’s Apex Bank
2. RBI A.P. (DIR Series) Circular No.47 dated June 07, 2017
2. Central Board of Direct Taxes notifies rule for secondary adjustments
Central Board of Direct Taxes (CBDT) has issued a notification3, issuing rule for secondary adjustment legislation4 introduced through the Finance Act 2017.
The Rule covers two aspects of computation of interest on secondary adjustment. It was mentioned in the new legislation5 that certain factors would be prescribed later, namely, time limit for repatriation of excess money and imputed per annum interest on excess money.
3. Notification, dated 15 June 2017
4. The law attempts to remove the imbalance between the actual profit allocation (consistent with the arm’s length principle) vis-àvis the cash account of the taxpayer. Taxpayer in India is required to receive cash in case a primary adjustment to transfer price has been made suo-moto/ by tax or appellate authority and it is accepted, else a secondary adjustment (notional interest) is imputed deeming the adjustment as advance.
5. Section 92CE of the Income-tax Act, 1961
3. Welcome amendments in Indian safe harbour rules
The CBDT has made amendments in the existing safe harbour rules. In this respect, CBDT issued a notification on June 7, 2017. The amendments in the Notification are primarily in the applicable safe harbour rates. It also brought within the ambit of safe harbor rules, the receipt of low value-adding intra group services. Safe harbour rules were first introduced in September 2013 and were applicable for five years from Financial year (FY 2012-13 to FY 2016-17). The amended safe harbour rules will be applicable for only three years, from FY 2016-17 to FY 2018-19. Accordingly, FY 2016-17 is the overlapping year. The Notification specifically provides that for the overlapping year, the taxpayer will have the option to apply the old safe harbour rates or the new safe harbour rates whichever is more beneficial.
4. CBDT notifies6 transactions for availing long term capital gains tax exemption on sale of shares on stock exchange
The ITA7 exempts long term capital gains arising from transfer of equity shares, where transfer of shares is on or after 1 October 2004 and the transaction of sale is chargeable to Securities Transaction Tax (‘STT’)8.
Vide Finance Act 2017, a proviso was inserted to provide that the aforesaid exemption would not be available if the transaction of acquisition of such equity shares is entered into on or after 1 October 2004, and such acquisition is not chargeable to STT.
6. Notification No. S.O. 1789(E) dated 5th June, 2017
7. Section 10(38) of the Income-tax Act, 1961
8. STT is chargeable under Chapter VII of the Finance (No. 2) Act, 2004 for transactions generally entered on stock exchange
5. Every outstanding “receivables” does not constitute an international transaction.
Delhi High Court recently pronounced an important ruling* on the treatment of outstanding receivables as international transaction for Indian transfer pricing regulations perspective.
* Pr. CIT vs Kusum Healthcare Pvt. Ltd. (I.T.A. No. 765/ 2016)