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*International taxation* *Model Tax Conventions Series* *KP 5 (11-07-2020)* Permanent Establishment

Posted on by Business So Simple in Miscellaneous, News Desk

*Model Tax Conventions Series*

*KP 5 (11-07-2020)*

#  *Chapter II: Definitions –Permanent Establishment*

*Meaning of PE [Article 5(1)]*

  • There should be an *enterprise*
  • Such enterprise should be carrying on a “business”;
  • There should be a “place of business (POB)”
  • Such POB should be at the *disposal of the enterprise* (may be owned/rented but must be one which the enterprise has the effective power to use);
  • The POB should be *fixed*, i.e. it must be established at a distinct place with a certain *degree of performance*
  • The business of the enterprise is carried on wholly or partially through this fixed POB

*A PE does not exist unless all the aforesaid conditions are satisfied.*

*Specific inclusions in the meaning of PE [Article 5(2)]

  • A branch
  • A place of management
  • An office
  • A Factory
  • A workshop
  • A mine, oil/gas well, quarry etc.

*Expansion of scope of Agency PE*

  • Agency PE targets activities done by a dependent agent (DA) of the enterprises in the Source State (SS)
  • DAPE now includes when an agent habitually concludes contracts or habitually plays the principal role leading to the conclusion of contracts routinely concluded without material modification by the enterprise.

*PE of an Insurance Enterprise*

UN MC

-UN MC has an additional Article 5(6) relating to insurance. An insurance Enterprise of a CS is deemed to have a PE in the other CS if it collects premiums in the territory of that other CS or insures risks situated therein through a person

OECD MC

In the absence of similar Article in the OECD MC, a PE of an insurance Enterprise is to be determined in accord with Article 5(1) or 5(2)

Series continue……

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# *FA 2020 Modification of concessional tax schemes for domestic companies u/s 115BAA(Tax on income of certain domestic companies-22%.) and u/s 115BAB(Tax on income of new manufacturing domestic companies-15%) to allow deductions U/s 80JJAA (Deduction in respect of employment of new employees) w.e.f. 01st April 2020 or section 80M (Deduction in respect of certain inter-corporate dividends) w.e.f. 01st April 2021.*

Posted on by Business So Simple in Miscellaneous, News Desk

*Financial awareness* Finance Quiz -Do You Know the Basics?

Posted on by Business So Simple in Financial Prudence

This 10-question quiz will give you a sense of the fundamentals you should learn to become a more effective manager/financial planner (This 10-question quiz isn’t designed to measure your entire financial IQ, You may *privately reply on my whatsup no 9560084833* or answer in your note book and match  after 10 days Financial awareness Thumb rule series:

1. *The income statement measures:*

a. Profitability

b. Assets and liabilities

c. Cash

d. All of the above

2. *A sale on credit ends up on the income statement as revenue and as what on the balance sheet?*

a. Accounts receivable

b. Long-term assets

c. Short-term liability

d. Operating cash flow

3. *What happens when a company is profitable but collection lags behind payments to vendors?*

a. The company is OK because profits always become cash

b. The company stands a good chance of running out of money

c. The company needs to shift its focus to EBIT

d. The cash fl ow statement will show a negative bottom line

4. *How is gross profit margin calculated?*

a. COGS/revenue

b. Gross profi t/net profi t

c. Gross profi t/revenue

d. Sales/gross profit

5.  *Which statement summarizes changes to parts of the balance sheet?*

a. Income statement

b. Cash fl ow statement

c. Neither of the above

d. Both of the above

6. *EBIT is an important measure in companies because:*

a. It is free cash fl ow

b. It subtracts interest and taxes from net income to get a truer picture of the business

c. It indicates the profi tability of a company’s operations

d. It is the key measure of earnings before indirect costs and transfers

7. *Operating expenses include all of the following except:*

a. Advertising costs

b. Administrative salaries

c. Expensed research and development costs

d. Delivery of raw materials

8. *Owners’ equity in a company increases when the company:*

a. Increases its assets with debt

b. Decreases its debt by paying off loans with company cash

c. Increases its profi t

d. All of the above

9. *A company has more cash today when:*

a. Customers pay their bills sooner

b. Accounts receivable increases

c. Profi t increases

d. Retained earnings increases

10. *Which of the following is not part of working capital?*

a. Accounts receivable

b. Inventory

c. Property, plant, and equipment

d. All of the above are part of working capital

International taxation-*Model Tax Conventions Series* -KP 4 (10-07-2020)

Posted on by Business So Simple in Miscellaneous, News Desk

#  *Chapter II: Definitions –Resident*

# *Resident*

  • *Resident of either CS* -A taxpayer has to demonstrate that *he is resident of one or both CSs to be able to gain access to a tax treaty and avail benefits thereunder*.
  • *Meaning of “Resident of a Contracting State”*  Any person who, under the laws of that State, is liable to tax therein by reason of his:

*Domicile*

*Residence*

*Any other similar criterion*

*Place of Management*

*Place of incorporation(POI)*

This term, however, does not include any person who is liable to tax in that State in respect only of income from sources in that state or capital situated therein.

Note: OECD MC does not contain reference to place of incorporation

  • *Tie-breaker Rule*

*In case of Individuals*

Where an individual is a resident of both CSs as per domestic tax laws of that CS, then, his residential status shall be determined by applying the *Tie-Breaker Rule* in the following sequence:

*Permanent Home*

*Centre of Vital Interests*

*Habitual abode*

*Nationality*

*Mutual agreement between Competent Authorities of the CSs*

*In case of Companies*

-Dual residence arises where one CS attaches importance to POI and the other CS to the POEM

-The tie-breaker test involves a case by case approach considering the no. of tax avoidance cases involving dual resident Cos.

-Request has to be mad by the tax payer through Article 25(MAP)

-Competent Authorities will rely on range of factors to resolve the question of dual residency.

Series continue……

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International taxation-Model Tax Conventions Series-KP 3 (09-07-2020)

Posted on by Business So Simple in Miscellaneous, News Desk

# Scope of the convention (1) Persons covered (2) Taxes covered

# *Taxes covered*-

  • Taxes on Income and capital
  • The MCs apply to taxes on income and on capital imposed on behalf imposed on behalf of a CS or of its political subdivisions or local authorities, irrespective of the manner in which they are levied.
  • Coverage of taxes-Taxes on Income and on capital covers:
  • *Taxes imposed*

On Total Income

On Total Capital

On elements of income or of capital

  • Taxes included

Taxes on *gains from alienation* of movable or immovable property

Taxes on total amounts of wages or salaries paid by enterprises

Taxes on capital appreciation

Series continue……

For daily updates, you may join:

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2 *YouTube Link https://www.youtube.com/channel/UCtgyAk11-4JfHh1mHDyZ5bg 

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Financial awareness-08-08-2020-Thumb rule #1

Posted on by Business So Simple in Miscellaneous

*Tomorrow is too late, yesterday is over and now is exactly the right moment. So START financial planning Right now*

Thumb rule #1

*Understanding the measures of Moneymaking-

-*Growth* for its own sake doesn’t do any good. Growth has to be profitable & sustainable.

-*Cash generation* Cash is ‘a company’s oxygen supply. It gives you the ability to stay in business, *Get a total picture*

– *Return on assets* -Not managing only by numbers, *Velocity*-how fast a particular asset moves “through a business to a customer.

*Missing the ‘A,’ or assets part isn’t usually apparent in good times. “It’s when things are slowing down that ROA makes all the difference. Emphasize the ‘A’ continuously—so that their people are always managing the receivables, the fixed assets, and the inventories—that thrive in good times and bad.”

*Think like an Owner*

 *First*, we’re able to think of the business as a whole.

  *Second*, we see the linkages between our unit and the business as a whole.

 * Third*, we’re better able to grasp what’s happening in the outside world—such as an economic slowdown—and relate that to the business and even to our own area.”

*Growth, cash generation, and return on assets—these concepts, along with a focus on customers, form the nucleus from which everything else about a business emanates*

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*International taxation* *Model Tax Conventions Series* *KP 2 (08-07-2020)*

Posted on by Business So Simple in Miscellaneous

# Scope of the convention (1) Persons covered (2) Taxes covered

# *Persons covered*-

*Resident of Contracting State (CS)- For application of treaty, a person has to be a resident of one or both of the CSs.

*Fiscally transparent entity*-Income derived by or through a fiscally transparent entity under the tax law of either CS to be considered to be income of a resident of a CS, to the extent such income is treated, for the purposes of taxation by that State, as the income of a resident of that State.

Series continue……

For daily updates, you may join:

1. FEMA & International taxation https://chat.whatsapp.com/J3O8lXBnYzdLnWmql7cBVG

2 *YouTube Link https://www.youtube.com/channel/UCtgyAk11-4JfHh1mHDyZ5bg 

*Model Tax Conventions Series**KP 1 (07-07-2020)

Posted on by Business So Simple in Miscellaneous

# Three types of Model tax conventions (1) OECD Model (2) UN Model (3) US Model

# In OECD MC- MC between developed countries, it advocates Residence based taxation

# In UN MC- MC between developed and developing country, More emphasis on Source based taxation

#In US MC-Applied by US

Series continue……

For daily updates, you may join:

1. FEMA & International taxation https://chat.whatsapp.com/J3O8lXBnYzdLnWmql7cBVG

2 *YouTube Link https://www.youtube.com/channel/UCtgyAk11-4JfHh1mHDyZ5bg

EEE, EET & ETE Tax Investments

Posted on by Business So Simple in Miscellaneous

*Let’s understand EEE, EET and ETE Tax Investments*

What is EEE?

EEE stands for EXEMPT EXEMPT EXEMPT and specifies three kinds of exemptions.

• Exempt 1 means that an investment qualifies for deduction. In this, a part of the annual salary/income, which is equal to the investment amount, is not taxable.

• Exempt 2 means that the interest earned on the investments is also exempted.

• Exempt 3 implies that the income generated from an investment is also not taxed during withdrawal.

EEE status is typically applicable to long-term investment instruments, with *Employer Provident Fund (EPF)* and *Public Provident Fund (PPF)*. It also includes other investment instruments such as *National Pension Scheme* and *life insurance policies*.

What is EET?

EET stands for Exempt Exempt Taxable. As the same suggests, an investor can receive two types of exemptions on his investments, while a taxable component also exists. In an EET investment:

• The first exempt denotes that you receive exemption on a stipulated investment limit, when the investment is made.

• The second exempt implies that the returns earned on the investments are also tax-exempted.

• The taxable component means that although you receive tax exemption on investment and interest accrued, you must pay taxes when you withdraw your investment.

Since the total amount i.e. the principal amount plus returns are taxed during withdrawal, you can earn lower returns from EET investments. However, this also depends on the tax slab you belong to. For example, if Mr. Sharma receives 8% returns on his investment and belongs to the 20% tax slab, he earns only 6.4% returns on his investments.

*Equity Linked Savings Schemes* or *ELSS mutual funds* fall under the EET category.

What is ETE?

ETE stands for Exempt Taxable Exempt and it is explained as follows:

• Exempt 1 denotes that the amount of income which is equal to investment amount is eligible for tax deduction basis the total limit of exemption.

• The T denotes that the interest earned on this investment qualifies as taxable

• Exempt 2 implies that the total amount withdrawn when the investment matures is tax-free.

E.g. a *tax-saving fixed deposit*

Interest accrued from his investment is taxable. ,

Invested amount and the total amount at withdrawal qualify for deduction