Tuesday, July 5, 2011

Australia tax office takes aim at foreign companies on tax avoidance

 Australia's tax-collector plans to target foreign companies in a renewed crackdown on tax avoidance, with special focus on firms that shift profits offshore to minimise local tax. 

The Australian Tax Office, one of the world's most aggressive tax agencies, outlined profit-shifting and multinational borrowing among its targets for the year ahead in its annual compliance programme unveiled last week. 

Below is an article on the 2011-12 compliance programme written by Thomson Reuters Professional's senior tax writer, Terry Hayes: 

The Australian Commissioner of Taxation has released the Australian Tax Office (ATO) Compliance Program 2011-12 (covers the Australian financial year July 1, 2011 to June 30, 2012). It highlights the compliance issues attracting ATO attention and what it is doing to address them. Some of the key focus areas from the Program include: 

The ATO plans to enhance its tax fraud detection and management. 

The ATO will examine large business corporate governance processes for managing income and indirect tax risks. The ATO plans to review related party arrangements to ensure profits are not shifted out of Australia and to review multinational borrowing arrangements. 

The ATO will continue to deal with the abusive use of tax secrecy havens (including through its continued participation in the Project Wickenby taskforce). Project Wickenby is a multi-agency taskforce. Its role is to protect the integrity of Australia's financial and regulatory systems by preventing promotion of and participation in abusive secrecy haven schemes. 

In a more international context, the ATO says that to obtain more complete information about offshore income and assets, it has increased its use of exchange-of-information provisions in Australia's existing double tax agreements and in newly-signed tax information exchange agreements. Australia continues to sign more of these information exchange agreements, the latest being with Liechtenstein. There are now 28 jurisdictions that have signed such Agreements with Australia. 

The ATO says increasing globalisation raises a number of compliance issues, ranging from transfer pricing to simple errors. 

The ATO matches data received under tax treaties, through automated exchange-of-information requests, and from AUSTRAC (the Australian Transaction Reports and Analysis Centre). 

The ATO says international profit shifting remains an area of concern. While the ATO says it will continue to promote its program of transfer-pricing Advance Pricing Arrangements, it will also undertake 25 reviews and 10 audits where it identifies a significant risk of profit-shifting, particularly for companies with a history of profit performance consistently below industry averages. 

During 2011-12, the ATO plans to contact over 600 taxpayers focusing on: 
Foreign source income derived by Australian residents. 
International shipping companies operating in Australian waters. 
Non-resident withholding tax, with respect to payments of interest, dividends and royalties - with a specific focus on franchising and governance controls 
Thin capitalisation, with respect to non-lodgment of thin capitalisation schedules and reviewing calculations of safe-harbour limits. 
The use of preferential tax regimes to evade income tax obligations. 

In relation to the Project Wickenby taskforce, the ATO says concealment is its main concern. A taxpayer may seek to conceal assets and income by setting up a bank account in a secrecy haven where Australia does not have an agreement to exchange information. The ATO is also concerned that taxpayers may also use an international promoter to set up and manage offshore trusts or companies that seek to conceal the taxpayer's beneficial ownership of assets. (ET)

Mandatory Cost Audit or Cost Compliance

Latest amendment with relation to Cost Records (Sec 209(1)(d) and Cost Audit (Sec 233B) of Companies Act to be complied from the year 2011-12 onwards

Ministry of Corporate Affairs has recently issued various notifications/circulars relating to cost records and Cost Audits. Through this communication, we would like to provide you a bird’s eye view of the various provisions/amendments.
The recent changes with respect to Section 209(1)(d) and 233B have been compiled herewith with explanations.

 Recent Changes (In brief)
 The Ministry of Corporate Affairs has introduced various changes in  costing domain like

  • Method of appointment of Cost Auditor has been changed vide circular No 15 dtd  11/04/2011
  • New Cost Audit Orders issued for 14 Industries rather than for companies
  • New Cost Accounting Record Rules vide notification number GSR 429(E)dtd 03/06/2011  issued in suppression of 36 notifications. Now instead of preparing specific formats for Cost Records, the company may prepare Cost Records as per its requirement subject to fulfilment of certain conditions
  • New Cost Audit Report Rules issued vide GSR 430(E)dtd 03/06/2011

Background relating to Costing under Companies Act;

  • Cost Records: Section 209(1)(d) of the Companies Act mentions about the preparation of cost records by certain class of companies (Earlier only 44 Industries  were covered) wherein any company falling under that industry and having turnover exceeding Rs Ten crores had to prepare and maintain cost records as notified vide various notifications.
  • Cost Audit:  Section 233 B mentioned about Cost Audit. It stated that
“ (1) Where in the  opinion of the Central Government it is necessary so to do in relation to any company required under clause (d) of sub-section (1) of section 209 to include in its books of account the particulars referred to therein, the Central Government may, by order, direct that an audit of cost accounts of the company shall be conducted in such manner as may be specified in the order by an auditor who shall be a cost accountant within the meaning of the Cost and Works Accounts Act, 1959 (23 of 1959)
As per the current practice, Central Government used to issue Cost Audit Order on Specific Companies which resulted in inequities as various companies though very big were being left out of the Cost Audit purview. To overcome these, few amendments have been made as summarised above. The detailed version is given below:
 The Audit Committee of the Board shall be the first point of reference regarding the appointment of cost auditors
  1. E-Filing of application (Form 23C) on MCA website
  2. Filing to be done within 90 days from the commencement of each financial year i.e. by 29th of June
  3. The following two documents  needs to be filed alongwith form 23C
    1. Certified copy of the Board Resolution proposing appointment of the cost auditor; and
    2. Copy of the certificate obtained from the cost auditor regarding compliance of section 224 (1-B) of the Companies Act, 1956.
  1. Now there is no need for the Central Govt to accord approval for appointment of Cost Accountant, the appointment will be deemed to be approved unless any objection is received from Central Govt within 30 days of filing the application
  2. The company has to issue formal letter of appointment after expiry of thirty days.
  3. The Cost Auditor has to file Form 23D with MCA within thirty days of receipt of formal letter of appointment
 New Cost Audit Orders issued for 14 Industries rather than for companies

The industries which have been brought under compulsory Cost Audit are:

Name of Industry to which the company relates Conditions for applicability in brief
A (a) Cost Accounting Records (Cement) Rules, 1997
(b) Cost Accounting Records (Tyres & Tubes) Rules, 1967
(c) Cost Accounting Records (Steel Plant) Rules, 1990
(d) Cost Accounting Records (Steel Tubes and Pipes) Rules, 1984
(e) Cost Accounting Records (Paper) Rules, 1975
 (f) Cost Accounting Records (Insecticides) Rules, 1993

  1.  wherein the aggregate value of the turnover made by the company from sale or supply of all products or activitiesduring the immediately preceding financial year exceeds hundred crores of rupees; or
  2.  wherein the company's equity or debt securities are listed or are in the process of listing on any stock exchange,
Cost Accounting Records (Bulk Drugs) Rules, 1974
Cost Accounting Records (Fortmulations) Rules, 1988
Cost Accounting Records (Fertilizers) Rules, 1993
Cost Accounting Records (Sugar) Rules, 1997
Cost Accounting Records (Industrial Alchohal) Rules, 1997
Cost Accounting Records (Electricity Industry) Rules, 2001
Cost Accounting Records (Petroleum Industry) Rules, 2002
Cost Accounting Records (Telecommunications) Rules, 2002
  1. Aggregate Value of networth as on the last day of immediately preceding financial year year exceeds Rs. 5 Crores, or
  2. wherein the aggregate value of the turnover made by the company from sale or supply of all products or activitiesduring the immediately preceding financial year exceeds twenty crores of rupees;or
  3.  wherein the company's equity or debt securities are listed or are in the process of listing on any stock exchange, whether in India or outside India
 Earlier there were different notifications for each of the 44 industries for preparation of Cost records i.e. Cost Accounting Record Rules (CARR):
 With the new Cost Accounting Record Rules 2011 having been  notified, CARR  for 36 industries have been superseded.
 New Cost Accounting Record rules 2011 are applicable from year 2011-12 onwards
 Now, all the companies including foreign companies which are engaged in the production, processing, manufacturing, or mining activities and which fulfil the following criteria have to mandatorily prepare Cost Records showing margin for each and every product manufactured/produced/constructed or services provided. Also the companies will be required to file Compliance Certificate with the MCA within 180 days of the close of financial year
  1. wherein, the aggregate value of net worth as on the last date of the immediately preceding financial year exceeds five crores of rupees; or
  2. wherein the aggregate value of the turnover made by the company from sale or supply of all products or activities during the immediately preceding financial year exceeds twenty crores of rupees; or
  3. wherein the company’s equity or debt securities are listed or are in the process of listing on any stock exchange, whether in India or outside India
these rules shall not apply to the activities or products covered in any of the following rules,-
(a) Cost Accounting Records (Bulk Drugs) Rules, 1974
(b) Cost Accounting Records (Formulations) Rules, 1988
(c) Cost Accounting Records (Fertilizers) Rules, 1993
(d) Cost Accounting Records (Sugar) Rules, 1997
(e) Cost Accounting Records (Industrial Alcohol) Rules, 1997
(f) Cost Accounting Records (Electricity Industry) Rules, 2001
(g) Cost Accounting Records (Petroleum Industry) Rules, 2002
(h) Cost Accounting Records (Telecommunications) Rules, 2002
 Basic requirements to be fulfilled while preparing Cost records

  • Margin per units:
The cost records shall be kept on regular basis in such manner so as to make it possible to calculate per unit cost of production or cost of operations, cost of sales and margin for each of its products and activities for every financial year on monthly/quarterly/half-yearly/annual basis.

  • Compliance with Cost Accounting Standards (presently 13 in number):
    • The cost records shall be maintained in accordance with the generally accepted cost accounting principles and cost accounting standards issued by the Institute; to the extent these are found to be relevant and applicable. The variations, if any, shall be clearly indicated and explained.

  • Reconciliations:
    • All such cost records and cost statements, maintained under these rules shall be reconciled with the audited financial statements for the financial year

  • Period for preservation  of Cost Records:
The records are required to be kept for eight years
  • Penalties:
    • If a company contravenes any provisions of these rules, the company and every officer thereof who is in default, including the persons referred to in sub-section (6) of section 209 of the Act, shall be punishable as provided under sub-section (2) of section 642 read with sub-sections (5) and (7) of section 209 of Companies Act, 1956 (1 of 1956).
  • Every company to which CARR-2011 applies shall file Compliance Certificate with MCA which has to be in prescribed format
  • Compliance certificate will be duly signed by a Cost Accountant
  • The Annexure prescribed with the compliance report, as certified by the cost accountant, shall be approved by the Board of Directors before submitting the same to the Central Government by the company.
 Authenticity of compliance certificates;
Auditors and company secretaries who have made false or incorrect certification will face penalties, including cancellation of their licences, said an official at the ministry of corporate affairs (MCA).
“The ministry, which has entrusted professionals such as chartered and cost accountants and company secretaries to ensure that integrity of documentation is maintained, has observed fraudulent and irresponsible certification happening,” said the official, who declined to be named.
The ministry has decided to take strict action after it found fraudulent certification being done by professionals in publicly traded firms—affecting a large number of shareholders—as well as privately held ones.
“The concerned professional can be debarred from submitting any document on the MCA portal and the ministry may ask their respective institutions to take disciplinary action against them,” said the official. Digital signatures of errant professionals will automatically be rejected by MCA21, the ministry’s portal through which documents are filed.

Monday, July 4, 2011

Service tax on rail freight deferred again

The finance ministry, for the fifth time, has deferred service tax on rail freight by another six months. The cash-strapped government is likely to take a hit of Rs 1,000 crore in a year due to this.
The deferment has come as a surprise since the ministry was expected to give effect to the tax after former Railways minister Mamata Banerjee demitted office after her victory in the West Bengal Assembly polls. Prime Minister Manmohan Singh now holds the railway portfolio.
The finance ministry had suggested the exemption given to the Railways from the service tax, till June 2011, should be allowed to lapse and tax be introduced from July 1. However, it has now deferred the 10 per cent tax till January 2012 without specifying any reason.
One reason could be the high inflation, which increased to 9.1 per cent in May from 8.66 per cent the previous month. Prices of items such as coal, cement and steel may go up if tax is levied on the service provided in relation to transport of goods by rail, said a finance ministry official.
The ministry has provided for abatement of 70 per cent of the gross value of freight charged on goods while levying the tax. The estimated loss of revenue would comprise over 1 per cent of the total service tax collection target of Rs 82,000 crore in the current financial year.
In the Budget 2009-10, the government had first proposed service tax on goods carried by the railway to provide a level-playing field in the goods transport sector. The ministry levies 1i0 per cent service tax (with an abatement of 75 per cent) on movement of goods by roads.
However, in September 2009, it exempted rail freight from service tax to deal with inflation. In the Budget 2010-11 the finance minister announced the exemption from service tax would be withdrawn. But the ministry has not been able to give effect to the tax due to opposition from Banerjee.

Friday, July 1, 2011

Indian Accounting Standards

Near Final Indian Accounting Standards (IND ASs) - (14-01-2011) 

These are the near final Indian Accounting Standards (Ind ASs) finalised by the Council of the ICAI and sent to the National Advisory Committee on Accounting Standards (NACAS). These are subject to any changes, which may be made by the Government before their notification. Any changes in the Ind AS vis. a vis. corresponding IAS/IFRS are given in Appendix 1 appearing at the end of each Ind AS.

Thursday, June 9, 2011


Income below Rs 5 lakh? You need not file returns

The government has exempt salaried people earning up to Rs 500,000 annually from filing income tax returns.
A move that will bring relief to about 80 lakh people was announced by the Finance Minister Pranab Mukherjee  when he presented the Budget in February.

On Tuesday, Pranab Mukherjee said this will be applicable in the 2011-12 assessment year for the income earned in 2010-11. He said that a notice to this effect will be brought out soon.

This move will reduce the compliance burden on small taxpayers. In case such a salary earner has income from other sources like dividend, interest etc. and does not want to file returns, he will have to disclose such income to his employer for tax deduction.
The Form 16 issued to salaried employees will be treated as Income Tax Return, he added.

Asking the Central Board of Direct Taxes to be vigilant in suspected money laundering cases, Mukherjee cautioned that terror activities and other crimes are being funded by anti-national elements through illegal transfers. 
Mukherjee disclosed that to check these transfers, government has approved setting up of Directorate of Criminal Investigation in Income Tax Department itself. 
The Directorate will track the criminal activities before, during and after the crime is committed. 
Expressing his keenness on fiscal consolidation, Mukherjee stressed that fiscal deficit has to be reduced drastically to achieve the goal.

File e-returns, get income-tax refunds in a month

To speed up refunds and encourage electronic filing of tax returns, the Central Board of Direct Taxes has promised expeditious refunds.

As on December 31, 2010, there were about 40 lakh refund cases pending with the tax department. Last year, a Comptroller and Auditor General report had highlighted that it takes as much as 10 months for a taxpayer to get his refund.

"The whole idea is that small taxpayers should not face any hardship in his interface with the department," Chandra added. Though the e-filing of tax returns is rising in absolute terms every year, its level has stagnated at about a quater of the total retuns filed.

"E-filing ensures that tax payers' information on income, taxes and refunds are uploaded in the tax system instantly and tax computations are processed on a real-time basis," said Vikas Vasal, executive director, KPMG.

"A refund banker scheme is already in place in the whole of country to ensure that taxpayers get refunds well in time," said an income-tax department official.

"We issued the highest-ever refunds in 2010-11," says Chandra, who had instructed his officials to clear all pending refunds before March 31.

This will also help the department begin with a clean slate when the new direct tax code comes into effect from the next financial year.

Such tax-payers will not be required to file return even if they have small interest income. "Any step to help tax-payers would help increase compliance levels," he said.

E-filing, which was formally launched on October 13, 2006, is mandatory for companies but remains optional for individuals.

Tuesday, June 7, 2011

File Service Tax Return in time as Maximum Penalty increased 10 times to Rs. 20000

Rule 7C Prescribe the Penalty which Assessee has to Pay if there is delay in filing of service Tax Return.
Where the return prescribed under rule 7 is furnished after the date prescribed for submission of such return, the person liable to furnish the said return shall pay to the credit of the Central Government, for the period of delay of-
(i) fifteen days from the date prescribed for submission of such return, an amount of five hundred rupees;
(ii) beyond fifteen days but not later than thirty days from the date prescribed for submission of such return, an amount of one thousand rupees; and
(iii) beyond thirty days from the date prescribed for submission of such return an amount of one thousand rupees plus one hundred rupees for every day from the thirty first day till the date of furnishing the said return:
Provided the total amount payable in terms of this rule  shall not exceed  the amount  specified in Sec.70 of the Act.
It is clear from the above that above penalty is subject to maximum specified in section 70. Section 70(1) Specify the maximum Penalty of Rs. 2,000/- in respect of  return filed up to 31st March 2011. This amount of Maximum Penalty is been increased to Rs. 20,000/- (Twenty Thousand only) w.e.f. 01.04.2011.

As per Section 71 (C) of the Finance Act 2011 (8 of 2011) Applicable from 1st April Unless Otherwise specified there was an amendment in Sub Section (1) of section 70 which is as follows:-
‘in Section 70 (1) of the Finance Act, 1994, for the words “two thousand rupees”, the words “twenty thousand rupees” shall be substituted’.
After Considering the above amendment the Maximum Penalty for Late Filing of Service Tax Return is been increased to 20000/- (Twenty Thousand) w.e.f. 01.04.2011 from earlier 2000/- (Two Thousand).
After enactment of Finance Bill 2011, the following position will emerge out:
Period of Delay Penalty/late fee before finance bill 2011 Penalty/late fee After Finance Act, 2011 (W.e.f. 01.04.2011)
for delay up to 15 days INR 500 INR 500
for delay beyond 15 days but up to 30 days INR 1,000 INR 1,000
for delay beyond 30 days INR 1,000 + INR 100 per day (from 31st day subject to a maximum amount of Rs 2000. INR 1,000 + INR 100 per day (from 31st day subject to a maximum amount of Rs 20000.
‘Provided also that where the gross amount of service tax payable is nil, the Central Excise officer may, on being satisfied that there is sufficient reason for not filing the return, reduce or waive the penalty’.

Friday, May 27, 2011

Income tax slabs for year 2010-2011

Slabs for year 2010-2011

Latest income tax slab rates for your quick reference. Year 2010-2011 This income tax slab table can be used as a ready reference in calculating your income tax for year 2010-11. This table is based on the latest income tax slab.

India Income tax slabs 2010-2011 for General tax payers

Income tax slab (in Rs.)Tax
0 to 1,60,000No tax
1,60,001 to 5,00,00010%
5,00,001 to 8,00,00020%
Above 8,00,00030%

India Income tax slabs 2010-2011 for Women

Income tax slab (in Rs.)Tax
0 to 1,90,000No tax
1,90,001 to 5,00,00010%
5,00,001 to 8,00,00020%
Above 8,00,00030%

India Income tax slabs 2010-2011 for Senior citizen

Income tax slab (in Rs.)Tax
0 to 2,40,000No tax
2,40,001 to 5,00,00010%
5,00,001 to 8,00,00020%
Above 8,00,00030%
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