Page 19 - Budget_2020

Union Budget 2020
Amendment in Dispute Resolution Panel (DRP)
U/s 144C, any assessee where transfer pricing adjustments are carried out or any foreign company, can apply
to DRP for objection against adjustment proposed by Assessing Officer in income or loss returned, if such
adjustment is prejudicial to its interest
To amend Sec 144C to remove cases only on income or loss returned and include all cases which are prejudicial
to the interest of assessee.
Further, the scope of Sec 144C is expanded to all non-residents

1st April 2020

This is certainly a welcome initiative, wherein the non-resident businesses can approach a de-facto appellate
mechanism for any tax adjustment without the payment of the minimum appeal demand (20%).

Aligning Purpose of Entering into DTAA with MLI
• Sec 90 and Sec 90A empowers Government to enter into Double Taxation Avoidance Agreements
(DTAA) with other countries/specified associations to avoid double taxation and related measures
• Multilateral Instrument (MLI) is an outcome of BEPS Project to tackle tax planning strategies that exploits
gaps and mismatches in tax rules to artificially shift profits to low or no tax jurisdictions
• India has ratified MLI and it has come into force from 01.10.2019
• MLI shall apply alongside DTAA modifying their application in order to implement BEPS measures
To amend Sec 90 and 90A to incorporate the preamble of Article 6
“Intending to eliminate double taxation with respect to the taxes covered by this agreement without creating opportunities for non-
taxation or reduced taxation through tax evasion or avoidance (including through treaty-shopping arrangements aimed at obtaining
reliefs provided in this agreement for the indirect benefit of residents of third jurisdictions)”.
AY21-22 and subsequent AYs

The proposed amendment is in line with India’s commitment to adopt the MLI regime.

Reclassification of FPI
 According to Sec 9, an asset being any share or interest in a foreign entity shall be deemed to be situated
in India, if the share or interest derives, directly or indirectly, its value substantially from the assets located
in India
 However, proviso to the section provides that the above shall not be applicable in case of investment in
Category I or II FPIs under SEBI (Foreign Portfolio Investors) Regulations, 2014
 SEBI (FPI) Regulations, 2019 has replaced the erstwhile SEBI (FPI) Regulations, 2014
The 2 proviso to Explanation 5 to Sec 9 is proposed to be amended to replace it with new SEBI regulation
nd

1st April, 2020 and will apply from AY 2020-21

This is a consequential amendment

Deferring Rules for Significant Economic Presence (SEP)
Finance Act, 2018 provided that SEP of a non-resident was deemed to be Business Connection if the
downloads and users exceed the specified limit. However, rules specifying the threshold for the aggregate
amount of payments and the volume of transactions are not yet notified
It is proposed to defer the applicability of provisions of SEP to AY 2022-23

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