Taxation Aspects of Multinational Corporations in India

Foreign non-resident business entities may have business activities in a variety of  ways. In its simplest form this can take the form of individual transactions in the nature of  exports or import of goods, lending or borrowing of money, sale of technical know how to an  Indian enterprise, a foreign air-liner touching an Indian airport and booking cargo or  passengers, etc. various tax issues arise on accounts of such activities.

The government wants  to encourage foreign enterprises to engage in certain types of business activities in India,  which in its opinion its desirable for achieving a balanced economic growth. This takes us to  the last aspect of activities which enjoy tax incentives in India.… Read the rest

Objectives of International Taxation

The main objectives of International Taxation are the Neutrality and Equity.

Tax Neutrality

A neutral tax is one that would not influence any aspect of the investment decision  such as the location of the investment or the nationality or the investor. The basis justification  for tax neutrality is economy efficiency. World welfare will be increase if capital is free to  move from countries were the rate of return is low to those where it is high. Therefore, if the  tax system distorts the after-tax profitability between two investments or between two investor  leading to a different set of investments being undertaken, then gross world product will be  reduced.… Read the rest

Double Taxation Relief

One of the major risk in the International Business is the payment of taxes in both the  countries i.e. the country in which the business is actually effected and in the  country where the MNC is having its head office. This type of double taxation  will definitely impede the growth and development of the MNCs in multiple  ways. So the provisions are made to avoid the double taxation (Double Taxation Relief) between the two  countries through two types of relief namely Bilateral Relief and Unilateral  Relief.

Bilateral Relief

Under this scheme, relief against the burden of double taxation is worked out on  the basis of mutual agreement between two countries.… Read the rest

Five Reasons that Contribute to Non Compliance with Tax Laws

Non compliance of tax laws  can be said to be a failure, intentional or unintentional, of taxpayers to meet their tax obligations. This lack of compliance can be as a result of different factors as indicated below:

  1. A Rising or High Tax Burden: Individuals and organizations will tend to be non compliant to tax laws when the taxes are deemed to be high as compared with the cost of living. In such a case taxpayers will tend to avoid payment of taxes so as to have a sizeable amount of money to be used in the purchase of different commodities.
  2. Lack of Knowledge on Tax Laws: This point focuses on the unintentional failure of a taxpayer to comply to tax laws.
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Primary Purpose of Taxation

Taxation is a means by which governments finance their expenditure by imposing charges on citizens and corporate entities. The main purpose of taxation is to accumulate funds for the functioning of the government machineries. All governments in the world cannot run its administrative office without funds and it has no such system incorporated in itself to generate profit from its functioning.  In other words, a government can run its administrative set up only through public funding which is collected in the form of tax. Therefore, it can be well understood that the purpose of taxation is very simple and obvious for proper functioning of a state.… Read the rest

Residential status and Tax liability

The scope of total income is determined on the basis of residential status of the assessee. For the purposes of this Act, there can be three residential status. Residential status is determined on the basis Basic conditions and Additional conditions

  1. Resident and ordinarily resident
  2. Resident but not ordinarily resident
  3. Non resident.


Resident and Ordinarily Resident [ROR]

                              An individual is said to be resident in India if he satisfies anyone of the basic conditions and both of the additional conditions.

Resident but Not Ordinarily Resident [RNR]

                              An individual is said to be resident but not ordinarily resident in India if he satisfies anyone of the basic conditions but does not satisfies both of the additional conditions.… Read the rest