Impt. Development in international tax measures in Budget 24

Key Significant strides in international tax measures taken in 2024 Budget

The Budget 2024 has made several significant strides in international tax measures, reflecting a focus on enhancing India’s attractiveness for foreign investments, reducing litigation, and providing more certainty in tax administration. Here’s a closer look at each measure and the potential gaps left unaddressed:

Equalisation Levy

• The budget proposes that the equalisation levy of 2% on e-commerce supply or services by non-resident e-commerce operators will not be applicable for transactions on or after August 1, 2024. This Equalisation Levy change could be seen as aligning with global trends where digital taxation is evolving, potentially easing the burden on international e-commerce operators while avoiding double taxation issues. The future of digital taxation, especially in light of global developments like the The Organization for Economic Cooperation and Development Pillar One, remains uncertain in India.

Corporate Tax Rate for Foreign Companies

• The corporate tax rate for foreign companies has been reduced to 35% to attract foreign capital. This Corporate Tax Rate for Foreign Companies reduction is likely to make India more competitive as a destination for FDI, aligning India’s tax rates with global standards. While this is a positive move, the disparity between domestic and foreign corporate tax rates could lead to complexities in tax planning and may require further rationalization.

Vivad se Vishwas Scheme

• A new Vivad se Vishwas Scheme will be introduced to resolve pending direct tax disputes. Vivad se Vishwas Scheme is a continuation of India’s efforts to reduce tax litigation, providing a mechanism for quick resolution and thereby increasing the ease of doing business. The success of the Vivad se Vishwas Scheme will depend on its implementation details, which need to ensure that it is accessible and attractive to taxpayers with pending disputes.

Safe Harbour Rules

• The scope of Safe Harbour Rules will be expanded to reduce litigation and ensure certainty in international taxation. By expanding these rules, India aims to provide clear and predictable tax outcomes for international transactions, thus reducing disputes. Further clarity on which transactions and industries will benefit from the expanded scope is necessary for full effectiveness.

Monetary thresholds for filing appeals 

• The monetary thresholds for filing appeals in direct taxes and indirect taxes have been increased to INR 60 lakh, INR 2 Cr, & INR 5 crore for Income Tax, Tribunals, High Courts, & Supreme Court, respectively. This move is likely to reduce the number of frivolous appeals and ease the burden on the judiciary, ensuring that only significant cases reach higher levels of appeal. While thresholds have been raised, the overall litigation process needs continuous refinement to ensure timely resolution of disputes.

Transfer Pricing Assessment

• The transfer pricing assessment procedure will be streamlined. This streamlining is crucial for multinational enterprises as transfer pricing remains a contentious area. Simplifying the procedure can lead to quicker and more transparent assessments. More details on how the streamlining will be implemented are needed to assess the full impact on multinational enterprises.

Interest Deduction in International Financial Services Centres

• IFSCs are exempt from the purview of Section 94B, which limits interest deductions.
• This exemption will likely attract more financial services and investments to International Financial Services Centres, reinforcing India’s position as a global financial hub.
• Gap: There could be a need for further incentives and structural reforms to ensure that International Financial Services Centres can fully compete with global financial centers.

OECD’s Global Minimum Tax- Gap Left Unaddressed

• The budget 2024 does not address the implementation of the OECD’s Global Minimum Tax in India. The absence of a clear stance on The Organization for Economic Cooperation and Development  Global Minimum Tax leaves uncertainty for multinational corporations operating in India. As global tax norms evolve, India will need to align its domestic tax policies with international standards to avoid tax disputes and ensure compliance. India may need to address this in future budgets or through amendments to avoid being perceived as lagging in global tax reforms. Aligning with the Organization for Economic Cooperation and Development framework could also prevent profit shifting and base erosion.
• In summary, while the 2024 Budget introduces several positive international tax measures, the omission of a strategy for implementing the The Organization for Economic Cooperation and Development  Global Minimum Tax could pose challenges for India’s global tax compliance and competitiveness.