Corporate
Tax
KCM is the regional leader in corporate tax, including tax compliance, representation, litigation, pre-transaction advisory and tax risk assessment. KCM views tax services not as tax reduction exercise but as a strategy to obtain tax efficiency keeping low risks.
Taxation of Expatriates

In recent times cross border transfers of employees have significantly increased. There are varied forms in which employees are transferred. The firm provides end-to-end advisory and compliance service to expatriates in respect of determination of residential status, structuring of remuneration, contribution to benefit plans, taxation of retirement / termination benefits and applicability of relevant DTAA. The firm also provides support for filing of filing of tax returns, representation before the tax authorities and other related compliances.

The firm also provides necessary assistance to expatriates for enabling them to comply with the laws of their country of domicile.

Representation

The firm has been actively engaged in providing services of representation before the transfer pricing authorities in India since the introduction of these provisions in the Indian tax laws. The firm has, during its extensive practice in the area of transfer pricing representation, contested a varied range of issues. Some of the typical and interesting issues handled by the firm are described below:

  • A company has international transaction in respect of purchase of raw material being mined metals from its subsidiary. In view to support subsidiary for flawless supply of material the Company had provided interest free loans. A non-conventional PLI being Net profit over Capital employed was applied under TNM method for benchmarking both the transactions. It was argued that since the funds are provided for ensuring flawless supply of raw material the selected PLI can only give better picture of Arm’s Length Price (“ALP”).
  • Company was paying Royalty since 1971-72 for manufacturing technology in respect of its main product. The Department has adjusted full amount of Royalty considering not payable based on argument that the technology was older than 25 years and no benchmarking under CUP method is available. During the recent years of Assessment, Firm has established the continuous supply of technology and successfully benchmarked the Royalty under CUP applying internal and external comparables.
  • A Company being manufacturer of automotive components benchmarked its various international transactions with its group companies under TNM Method. The company has segregated the transactions under Manufacturing and Trading segment based on FAR analysis. It was argued by the department that manufacturing segment should also be further segregated into DTA and EOU segments and the PLI of these segments should be benchmarked with the comparable margin for manufacturing activity. It was argued that since the FAR of DTA and EOU is that of Manufacturing, it should be analysed under manufacturing segment as whole and not on segregated basis. Further it was successfully argued that if any adjustment to the profit under TNM method is required to be made it should be restricted to adjustment on value of international transactions aggregated under the segment and not over the total sales of the Segment.
  • Further, the transaction of the company in respect of payment of royalty was benchmarked under manufacturing segment. The department, in specific years, while accepted the benchmarking analysis for all the transactions under TNM method with segmental margins, has determined ALP of Royalty separately applying CUP and made adjustment accordingly. It is being argued that Royalty has already been benchmarked under manufacturing segment as profit of this segment was considered after reducing the royalty paid. The company has filed appeal before ITAT.
  • A company manufacturer of dyes and pigments for paint industry, purchased entire business segment from one of the group companies. The value of business was mainly represented by the value of Technical Know-how and Marketing Intangible being Registered Trademarks. The international transaction was initially benchmarked on the basis of the valuation carried out by Independent valuer. The Department has questioned the level of independency of valuer and rejected the valuation so carried out as a benchmark for this transaction. During assessment proceedings it was argued that the company has recovered entire cost of purchase of business from additional sales price attributed to the marketing intangibles within short period of only 2 to 3 years. In view thereof the valuation as carried out by the valuer considering maintainable profit for subsequent 5 year has to be considered as reasonable.
  • The assessing authority rejected the argument and made substantial adjustment to the income on this count. On appeal with above argument the appellate commissioner has restricted adjustment to a considerable lower level. The case is pending at ITAT.
Tax Assessment

The firm has a very vast practice of representing its clients before the tax authorities for tax assessments, internationally known as audits. The firm has handled very complex cases of tax assessments and investigations. The firm handled some very interesting assignments some of which are mentioned herein:

  • A large business house had taken a tax position in respect of a tax incentive. The firm was engaged for carrying out the tax review and the firm was of the opinion that the company was eligible for much larger tax rebate. Though the tax returns were filed with significantly low or no claim for tax rebate, the firm could successfully make the claim for higher tax rebate during the course of assessment resulting into significant legitimate reduction of tax liability. This was then replicated in many other cases having similar facts.
  • The firm has been able to successfully represent its clients in cases of investigation by tax department of cost allocation and profit determination by leading extensive evidence, documentation and justification resulting into appropriate tax assessment and avoiding long drawn multi-year tax litigation. The firm has handled several such cases of cost allocations especially when profit of one of the undertaking is eligible for concessional tax treatment.
  • The firm has handled several cases where complex issue of classification of transaction / asset into capital or revenue is involved. Such classification can have major tax implication. Representation requires deep understanding of judicial pronouncements and evidential support.
  • There are cases where the tax department adopts aggressive methods of investigation including spot verification known as surveys or searches of business / residential premises. While the firm is very careful in accepting representation in such cases, it has handled very complex corporate cases where such investigations have been carried out.
Tax Litigation

The Firm has dedicated persons providing support in the tax litigation services. We have handled matters dealing with appeals with the Commissioner of Income Tax, Income Tax Appellate Tribunal, Authority for Advance Ruling, Settlement Commission and Dispute Resolution Mechanism. We are also equipped to provide support in case of litigation before the High Court and Supreme Court. The firm has successfully argued several celebrated matters of tax litigation resulting into appropriate tax liability determination in case of our clients. Some of the cases handled by the firm have been part of national level debates and discussions. Few of such cases are mentioned below:

  • Where an American corporation provided designs and drawings for a chemical plant to an Indian Company, the question arose as to whether such designs and drawings would constitute fees for technical services under the Indian Tax Laws and under the Indo-US Tax Treaty. The firm was able to successfully argue before Authority for Advance Ruling that the same would not amount to fees for technical services and accordingly amount paid would not be subject to Indian Withholding Taxes. Reference – Pro-quip Corporation, USA – A Linde Group Company.
  • An American citizen and tax resident was having a business set up in India. The said person had claimed tax rebate available to exports. The tax authorities denied the deduction on the ground that such rebate is available only to persons who are resident in India. The Firm successfully argued the matter before a Tribunal that the same amounts to discriminatory treatment of a resident of USA as compared to resident of India and is accordingly against the tax-treaty. The tribunal accepted the argument of the Firm and allowed the tax rebate to the American Resident. It is noteworthy that since there were divergent views on this matter, the President of the Tribunal had constituted a Special Bench of the Tribunal for this purpose. Reference – Rajeev Gajwani.
  • In case of a corporation based in India, already completed assessments were re-opened on the ground that proper allocation of expenses were not done between different business units and had accordingly resulted into escapement of tax. The said re-opening was successfully challenged before the Tribunal on the ground that the same amounted to change of opinion and therefore beyond powers of the Assessing Authority to reopen. Reference – FAG Bearing – A Schaeffler Group Company.
  • A leading car manufacturer had set up a plant of manufacturing cars in India. During the pre-production stage, the Company had commenced the booking of the cars. The firm could successfully argue that from the date on which the booking of the cars were commenced, the business is deemed to have been set up and accordingly, interest on borrowing thereafter should not be capitalized and should be allowed as deduction against the interest earned. Reference – General Motors India – Subsidiary of General Motors, USA.
  • As part of acquisition of assets of a company, a subsidiary of a US Company had transferred some consideration to Goodwill, being difference between consideration paid and value of tangible assets acquired. The tax department denied depreciation on the goodwill on the ground that goodwill is not a depreciable asset. The Firm successfully argued the case of the Assessee that depreciation is available on the amount of goodwill. Reference – Koch Chemicals – A subsidiary of Koch Group USA.
  • A Russian joint stock company was part of a consortium arrangement with an Indian Company for execution of the project. The Russian JSC received certain fixed percentage of the total contract value for the limited scope of work, though it was the lead partner of the contract. The issue of characterization of the receipt was contested before the Tribunal and the firm was successful in arguing that considering the nature of participation by the Russian JSC, the amount paid was for technical services and not business income and is therefore eligible for concessional tax treatment under Indo-Russia Tax Treaty. Reference – Joint Stock Company Zengas.