AAR paves way for cap gains tax on Vodafone

MUMBAI: In a determination that may boost
the income-tax department’s opportunities of bringing the $11.1-billion deal
between Hutchison International and Vodafone into the taxation net, the Authority for
Advance Rulings (AAR) have held in a similar lawsuit that dealing of Indian
shares between two foreign physical things is apt for working capital additions taxation in the
country. Aare is a quasi-judicial authority deciding on tax
disputes. AAR’s opinion on Friday refers to dealing of shares
in the Hyderabad-based Three Corporation. In this case, the purchaser and seller
of Three shares were both United States entities. Aare ruled that the purchaser of the shares
will be taken as an 'agent’ under Section 163 of the Income-Tax Act. It
also ruled that the burden of TDS is also on the purchaser under Section 195 of the
Act. In other words, Aare ruled that the purchaser of the shares is
liable to pay working capital additions taxation on the transportation of shares of an Indian company
even if the dealing is offshore and between two non-residents. The decision,
though binding lone on the lawsuit that came up before it, have persuasive value on
similar cases. Non-residents are charged long-term capital additions at the charge per unit of
20% for off-market transactions. Aare have upheld the I-T department’s stand
on the land that since the working capital additions are generated in India, they are
liable to be taxed here. In the lawsuit of the Hutch-Vodafone deal, a
showcause notice have been served on Vodafone Essar, asking why the company
should not be treated as an agent of Vodafone under the I-T Act. After this,
Vodafone Essar had moved the Greater Bombay High Court for quashing the notice. In the
case of Hutchison, the company took a base that since the transportation of shares
had taken topographic point outside Republic Of India between two non-residents, the Indian tax
authorities could not impose working capital additions tax. According to Vodafone
Essar, the shares were transferred directly from Hutchison International via CGP
Investment (Holdings), which is incorporated in the Cayman Islands, to Vodafone. Besides, the companies that control Hutchison Essar (HEL) are based in
Mauritius, which have a dual revenue enhancement turning away understanding (DTAA) with
India. The Greater Bombay High Court, which was hearing the lawsuit of Vodafone
International, had made a funny observation on this issue. The division Bench
comprising Justice FI Rebello and Justice Deodhar observed that the deal, as
claimed by Vodafone International, was not a simple lawsuit of transportation of shares
between two foreign companies. It pointed out that the sale of shares was with
the blessing of FIPB, which was subject to conformity with North American Indian laws and
regulations, including taxation laws. The high tribunal made this
observation during the hearing of the request filed by Vodafone International,
the Netherlands, against whom the I-T section sent a notice for its failure
to subtract taxation while making payment to Hutchison Telecom International, Hong
Kong, for acquiring 67% involvement in Vodafone Essar.

Offshore Tax Planning For Beginners

When considering any word form of offshore taxation planning you necessitate to essentially have on 'two hats'. The first chapeau is the United Kingdom hat, and the 2nd is your offshore hat. You necessitate to guarantee that you see the sum taxation impact, both in the UK, as well as offshore to make up one's mind whether your taxation planning scheme is worthwhile or not.

Different offshore taxation planning strategies

Firstly, you could travel overseas. Essential to this is that you necessitate to guarantee you discontinue to be United Kingdom occupant and ordinary resident. If you do, you can usually avoid United Kingdom Capital Gains Tax provided you're remove for at least five complete taxation years. Of important importance here is the abroad dimension. In peculiar you necessitate to guarantee that you're not going to endure taxations abroad or if you make you're fully aware in progress of the taxation load you face.

When considering moving overseas, there are a figure of traditional taxation oases that are continually popular with taxation understanding expats such as as Switzerland, Monaco, Cyprus, Republic Of Malta and Andorra.

Secondly you could see using an offshore company. If you are going overseas, using an offshore company is pretty much criterion pattern for international trading. If though, you're remaining to dwell and work in the United Kingdom it is much more than hard to utilize an offshore company taxation efficiently, at least for United Kingdom taxation purposes. That's not to state it's impossible, just that it will be looked at closely by the taxation authorities.

There are a raft of anti turning away regulations to consider. Essentially you've got the best opportunity of obtaining taxation benefits with an offshore company if you can demo it's controlled from outside the UK, and that you are either non United Kingdom domiciled or that you had a sound concern motivation for incorporating the company overseas. If you can accomplish this, the benefits can be immense as any abroad net income will get away United Kingdom taxation altogether (and in most lawsuits any taxation overseas as well). Using an offshore company in concurrence with an offshore trust (see below) can help in obtaining these benefits as well.

Thirdly you could utilize an offshore trust. Offshore trusts (and their 'cousin' the foundation)are an old front-runner for international taxation planners. There's been a planetary clampdown on using trusts (given the perceptual experience that they were established for taxation turning away motives) -- so are they still an effectual tool in reducing United Kingdom & abroad taxation liabilities?

The reply -- yes they are but in pretty limited circumstances. If you're a United Kingdom citizen born and bred the anti turning away commissariat that use to any offshore trusts you constitute are in some ways stricter than if you formed a United Kingdom trust. So you could happen yourself in a worse taxation place than if you established a United Kingdom trust. It's not always like this though and there are fortune where offshore trusts can still be used taxation efficiently.

Most notably, there's the place of non United Kingdom domiciliaries. Again they are in a privileged place as many of the taxation anti turning away regulations don't use to them so they can obtain taxation benefits from using trusts much more than easily. There are also specific taxation freedoms and chances for trusts that are for income taxation turning away only (as opposing to working capital additions taxation avoidance) or where close household won't be listed as beneficiaries.

Offshore trusts are however still popular for people coming to dwell in the UK. Settling abroad assets into an offshore trust before obtaining United Kingdom abode or dwelling position can take to large taxation nest egg in the long term (particularly in footing of heritage tax).