Category: Miscellaneous

*FEMA*-*An Act Overview* Series

*Background*

• Foreign exchange control – Exchange control law through Defense of India rules by the Britishers in 1939.

• Foreign Exchange Regulation Act (FERA) was enacted in 1947

• ‘The Foreign Exchange Regulation Act, 1973’ (FERA) Replaced Foreign Exchange Regulation Act, 1947 (FERA)

• Foreign Exchange Management Act, 1999 w.e.f. 01^st June 2000 (FEMA), (repealed FERA 1973). 

*Salient Features of FEMA*

• *Regulation of transactions* BETWEEN *residents and non-residents*

• *Investments in India by non-residents*

•  *Overseas investments by Indian residents*

•  *Freely permissible transactions on current account* subject to reasonable restrictions that may be imposed

• *RBI control over capital account transactions*

• Requirement for *realisation of export proceeds and repatriation to India*

• *Dealing in foreign exchange through ‘Authorised Persons’* (Authorised Dealer/Money Changer/Off-shore banking unit )

• *Adjudication and Compounding of Offences*

• *Investigation of offences by Directorate of Enforcement*

• *Appeal provisions* including Special Director (Appeals) and Appellate Tribunal.

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

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

3. Telegram Channel Link t.me/FEMAANDINTERNATIONALTAXATION

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

3. Telegram Channel Link t.me/FEMAANDINTERNATIONALTAXATION

#  *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……

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 

3. Telegram Channel Link t.me/FEMAANDINTERNATIONALTAXATION

# 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:

1. FEMA & International taxation https://chat.whatsapp.com/J3O8lXBnYzdLnWmql7cBVG
2 *YouTube Link https://www.youtube.com/channel/UCtgyAk11-4JfHh1mHDyZ5bg 

3. Telegram Channel Link t.me/FEMAANDINTERNATIONALTAXATION