India Regulatory Brief: Government Clarifies Definition of Start-ups, Ease of Pricing on Imports of MNCs

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Government Clarifies Definition of Start-ups

The Department of Industrial Policy & Promotion (DIPP) issued a clarification on the government’s definition of start-ups in India. This is to standardize norms for ventures seeking eligibility for benefits under the Start-up India Action Plan.

According to DIPP guidelines, a venture is qualified as a start-up for up to five years from the date of its registration and if the firm’s turnover is less than US $3.7 million (Rs 25 crore). The firm must then be licensed as a start-up by the Inter-Ministerial Board of Certification to qualify for tax breaks and other benefits. The certification process will assess the following criteria as put forth by the DIPP – innovation, development, commercialization of new products, processes or services driven by technology or intellectual property.

Towards this, the start-up must submit an application on the mobile application or online portal of the DIPP. It should be supported by documents verifying that funding is not less than 20 percent in equity by an incubation fund, angel investor, or private equity fund that is duly registered with the Securities and Exchange Board of India (SEBI).

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Indian Multinational Companies to Adhere to Global Compliance Standards

Changes to the existing legal provisions for all multinational corporations (MNCs) operating in India, including subsidiaries of foreign MNCs will be introduced effective April 1. This is to ensure that MNCs in India meet the Country-by-Country (CbC) reporting standards mandated by the Base Erosion and Profit Shifting (BEPS) guidelines set by the Organization for Economic Cooperation and Development (OECD). All G20 governments are expected to reach these standards by 2017. The OECD introduced these norms back in October, 2014 to plug tax loopholes estimated to cost countries about US $100 billion a year.

The BEPS action plan lays out a three-tier transfer pricing documentation structure for MNCs. Transfer pricing is defined as the price at which different divisions of a company transact with one another. The proposed documentation structure entails a master file, a local file, and a CbC reporting requirement. Further, in the case of a multinational firm with a global consolidated turnover of over US $873.74 million, the parent company will be required to file the CbC report with their respective tax authority. This must then be communicated to all countries of operation of that MNC.

About 150 companies will qualify for CbC compliance in India. The Union Budget 2016 should detail the new reporting standards and provide the procedures for compliance. MNCs will have to incorporate these changes into existing accounting systems, compliance systems, and reporting structures. The government’s IT department is said to be in the final stage of establishing the administrative set-up to ensure the confidentiality of information reported.

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Government to Ease Pricing of Imports for Indian Arms of Multinational Firms

In order to improve conditions for doing business in India, the government has eased the pricing of imports by local arms of multinational firms. This will benefit import-dependent entities like Swarovski, Apple, BMW, Audi, and Bausch & Lomb. The new mechanism comes after 15 years of customs rules that levied extra duties on imported goods. Under this new system, a simplified mechanism and a one-time declaration will be introduced to quickly dispose of pending cases at the Special Valuation Branches (SVBs) of the Central Board of Excise and Customs (CBEC). There will also no longer be a renewal of SVB orders. The new rules will help reduce working capital requirements for importers.

Only in those cases where an importer fails to provide the appropriate documentation within 60 days of requisition will there be a levy of 5 percent security deposit. This penalty will be imposed for a period of no more than three months. The security deposit can be paid either in cash or through a bank guarantee. The CBEC has further clarified that imports of prototypes, exempt goods, or goods valuing less than US $1456 (Rs 1 lakh) and cumulatively not exceeding US $ 36,395 (Rs 25 lakh) in a financial year will not be investigated.

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