Author: Brian Sanchez

Twesh Mishra The implementation of the Insolvency and Bankruptcy Code (IBC) has started cleaning up the loan disbursal process and even the the nature of doing business, according to Principal Economic Advisor, Ministry of Finance, Sanjeev Sanyal.

NPA problem

“In 2017, the government decided to test the completely new IBC to target the top 50 or 60 companies that are the main cause of the Non Performing Asset (NPA) problem and account for almost two-thirds of the bad loans, and to try to force them into some sort of a resolution,” he said at the BusinessLine and SASTRA University ‘Post Budget Talk’, powered by FICCI.

Instead of upfront recapitalisation of banks, the government used this measure to squeeze them by introducing BASEL III norms, Sanyal noted.

Huge losses

“And as a result of these cleansing measures, State Bank of India has announced huge losses after many years,” he said, adding that it was a very painful thing to impose on the economy, which was already suffering.

Sanyal said the culture of not paying back loans and getting away without any punishment had to be broken.

“This is a culture where all kinds of investments could be made by promoters with the thinking that heads I win, but tails you, that is the taxpayer, lose.”

Change in culture

He said: “The tribunals in charge of the insolvency process have done quite well, and the courts have not got in the way.

“The National Company Law Tribunal (NCLT) has more or less processed things and even before reaching the deadline for turning around these companies, you have clearly seen a change in culture at the banks.”

Sanyal noted that there has been a change in the business culture as well: there is now an understanding that when things go wrong, companies will not get an automatic rescue package from the taxpayer funds.

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The Income Tax department today said that it had unearthed alleged tax evasion and undisclosed income of Rs 195 crore in its first-ever major action against fish processing businesses in coastal Karnataka.

Making details of the recent operation public, the department also said that it had detected the role of a Chinese firm, in some instances, in “paying commission” to local middlemen, outside India.

This was being routed through hawala channels to countries such as Dubai, Oman and Mauritius, and nations in the Middle East and Africa, it said.

It said the department has also detected some foreign account holdings and investments after it conducted searches and surveys at a total of 43 premises across five states in the last week in this case.

“The anti-tax evasion action was undertaken against three major groups involved in fish processing business in Mangalore and Udupi regions of Karnataka. The investigation wing of the department based here spearheaded the operation,” a senior I-T officer said.

The department, till now, has seized “unaccounted” cash to the tune of Rs 88 lakh as part of these operations that were launched on February 8 by involving over 150 sleuths from its various offices in Bengaluru,Mysuru, Hubli, Belgaum and Panaji.

“The searches also resulted in unearthing of nearly Rs 195 crore undisclosed income so far.

“This (total tax evaded amount) is likely to go up further as the department plans to investigate all related parties and concerns, bank transactions in India and abroad and about investments made in the foreign shores,” the department said in a statement.

It did not identify the groups.

The department said that during the searches, it was found that “the processing units are, with the help of agents, showing huge bogus creditors in the name of fishermen.

“It was also found that huge cash was paid to the agents in the name of fishermen, violating the provisions of the Income Tax Act,” the department said.

It said that tax sleuths also noticed that “various benami entities were floated in the name of relatives and employees to make unaccounted investments”, in alleged violation of the recently enforced Benami Transactions Act.

The searches, it said, also brought forth some of other malpractices like “the lab reports were being managed for the quality report on the fish food”.

“The fish oil is adulterated in a few instances with other lower grade oils and the diesel subsidy is misused by procuring the boats on various benami names, as law regulates only one boat eligible per person for such subsidy,” the department said in the statement.

It said the processing units were importing fish meal and the same was “re-exported for making false claim of duty draw back.”

“The plant and machinery imported was under invoiced, causing loss of customs duty,” it said.

The department said that sleuths who were part of the raid operations found these firms were maintaining “posh guest houses to extend hospitality to the persons with whom they deal with”.

It was also detected, it said, that many agents and processing units are splitting their income in the name of relatives, employees and fictitious entities, in violation of the tax law.

“It was also noticed that some of the fishermen are under impression that their income is exempt, like agriculture income, which is not correct,” it said.

The department, apart from searching the three un- identified groups, also raided the agents who support them in procuring raw fish.
It said the taxman also conducted verification with some of the “end users of the processed food.”

“A similar modus operandi is believed to be followed by many entities and individuals connected with the fishing industry.

All such persons may like to come forward and pay due taxes on their own,” it said.

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NEW YORK – If exploiting a tax loophole is as much an art as a science, then the tax-planning profession is poised for a creative renaissance.

The inspiration is the tax law signed by President Donald Trump in December. The patrons are affluent Americans who can afford advice from the nation’s more ingenious accountants, tax lawyers and financial advisers.

And the new medium they’re experimenting with? A 20 percent deduction for pass-through businesses, whose income is taxed on company owners’ personal returns.

It’s early days, and the Internal Revenue Service has yet to issue guidance on how to interpret the hastily passed law. That hasn’t stopped tax pros from circulating proposals and riffing on each other’s ideas, as the industry seeks to coalesce around strategies that will save their clients money while standing up to scrutiny by the IRS and judges.

Some pass-through owners may be instructed to group together their diverse businesses to minimize their tax bills, while others may be told to split pieces off.

“I’m sure folks will try to push the edge of the envelope,” said Mark Nash, a tax partner at PricewaterhouseCoopers LLP. “They always do.”

Trump and congressional Republicans have said middle-class Americans and small businesses will be the biggest beneficiaries under the $1.5 trillion tax cut.

But the strategies under consideration to take advantage of the 20 percent pass-through deduction show how top earners could ultimately reap the biggest gains.

All taxpayers who earn less than $157,500, or $315,000 for a married couple, can now deduct 20percent of the income they receive via pass-through businesses from their overall taxable income. If taxpayers earn above those amounts and aren’t service professionals, they must meet tests to take the full deduction – the size of their deduction depends on how much they pay in employee wages or how much they’ve invested in capital like real estate.

For “service professionals,” the break fully phases out if they earn more than $207,500 if they’re single, or $415,000 if they’re married.

There’s ambiguity with the rules, though. For example: What’s a service business? The tax code already specifies an official list that includes health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services and brokerage services. But that language is “broad and vague and the IRS has never provided guidance as to what those terms mean,” Nash said.

Plus, that section of the new legislation ends with a puzzling coda. Also excluded are “any trade or business” where the “principal asset” is the “reputation or skill” of its employees or owners. Few are sure what this means.

That kind of confusion creates opportunities to work around the service definitions or to recast businesses in ways that arguably fall outside the excluded categories.

One strategy being discussed is to combine diverse businesses into a single entity. An accountant who also invests in real estate, managing hotels and other properties might put everything in one company, depending on how the IRS writes the regulations, according to Richard Kollauf, director of wealth services at BMO Private Bank.

Instead of appearing to the IRS to be an accountant – a service-based profession that wouldn’t qualify for the pass-through break over the income limit – you look more like a real estate magnate, who would qualify because of large capital investments.

Or, if your business makes the majority of its money through your service profession, the opposite strategy could work. By breaking different businesses apart, service-business owners could have at least some of their income qualify for the pass-through deduction.

A medical practice might do a fair amount of debt collection or other back-office support. Those divisions could be spun off into a separate “management company,” which could qualify for the break.

Taking it a step further – service professionals may also consider buying new real estate and adding it to their business portfolios. That’s an option under consideration by Nicholas Sher, a certified public accountant. Sher said he’s thinking about buying an office condo through a new entity – which would then lease it back to his firm, Sher & Associates. He could then try to take the 20 percent deduction through the condo entity.

“If I had the right location I would do it in a second,” Sher said.

Business owners who do that may be tempted to drive a hard bargain with themselves – to maximize the money that qualifies for the deduction. But keep in mind: The IRS has rules about transactions with yourself, and you may have to use market prices.

“Tax lawyers are very good at dreaming up these things,” said Indiana University professor Bradley Heim, an economist who studies tax policy.

Not all these strategies will work. IRS regulations could shut down some loopholes, forcing tax planners to improvise new, riskier tactics to get around the rules. The most aggressive techniques might require a legal fight with the IRS.

“You have to be careful. There are people out there who come up with hare-brained ideas,” said Eric Hananel, a CPA and principal at UHY Advisors. “Tax considerations are important, but you can’t let a tax consideration drive a business decision.”

Not all tax-planning strategies are controversial. A married doctor making $500,000 might drop her taxable income below the threshold by maximizing contributions to retirement plans and a health savings account and strategically giving money to charities, perhaps through a donor-advised fund.

Expect lots of creativity from America’s tax experts this year. After all, most have a strong incentive to bend the rules. As well-paid service professionals, they’re personally excluded from the new law’s biggest benefits.

“That’s an issue near and dear to every lawyer and accountant’s heart,” said Jack Wilk, managing partner of the law firm Wilk Auslander.

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WASHINGTON — The U.S. services sector boomed in January, registering the best performance since 2005 and delivering more evidence of American economic strength.

The Institute for Supply Management, a trade group of purchasing managers, said last week that its services index hit 59.9 last month, up from 56 in December and the highest since it reached 61.3 in August 2005. Anything above 50 signals that the sector is expanding. The services sector is now on a 96-month winning streak.

Production, new orders, hiring and new export orders all grew faster in January.

Fifteen services industries reported growth in January, led by management firms and entertainment companies. Just three contracted, led by information companies.

Private services companies dominate the U.S. economy, accounting for 71 percent of American jobs.

Anthony Nieves, chair of the ISM’s services index committee, said the strong January performance reflects improving business and consumer confidence and a strengthening global economy. A massive tax-cut bill that became law in December may also be helping.

“The tax changes have definitely promoted some activity (in) new orders,” Nieves said.

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Making details of the recent operation public, the department also said that it had detected the role of a Chinese firm, in some instances, in ‘paying commission’ to local middlemen, outside India. Representation image

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The new U.S. tax law could throw a monkey wrench into a method many analysts and investors use to gauge the strength of companies’ earnings.

A provision of the tax overhaul enacted in December assesses a one-time tax on companies’ accumulated earnings from outside the U.S. But while the tax is typically charged to companies’ 2017 earnings, firms have the option of stretching the actual tax payment over the next eight years, interest free.

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… Co. repeatedly broke New York law by failing to protect its … BeIN Media) and private equity firms Shamrock Capital Advisors and Vine …
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Gautam Adani (Reuters Photo)

The order of the Directorate of Revenue Intelligence’s adjudicating authority to strike down all proceedings launched by the DRI against two Adani Group firms in a power equipment overvaluation case of nearly Rs 4,000 crore is “erroneous, illegal and improper not only in law but also on facts”, according to the Customs department.

In an appeal filed at the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) in Mumbai on November 28, the department claimed that the adjudication order “suffers from several contradictions which indicate either total non-application of mind or recklesness in passing of the order”.

It alleged that “…the manner in which the adjudicating authority has gone on to describe an otherwise dubious contract process in glowing terms as transparent, independent and good corporate governance practice… only points at eagerness and bias on the part of adjudicating authority to justify overvaluation ignoring facts to the contrary”.

On August 22, 2017, the DRI’s adjudicating authority, K V S Singh, dropped all charges filed by the agency against Adani Power Maharashtra Ltd (APML) and Adani Power Rajasthan Ltd (APRL) for allegedly inflating the total declared value of the goods imported under power and infrastructure heads, which attracts zero or less than 5 per cent duty, to the extent of Rs 3,974.12 crore. The decision came after the DRI alleged that the goods — power generation and transmission equipment — imported by APML and APRL in 2009 and 2010 were shipped directly to India by the original equipment manufacturers (OEMs) based in China and South Korea, while the documents were routed through an intermediary entity, Electrogen Infra FZE, UAE (EIF), created in Dubai.

The actual invoice value of the OEM was remitted to the supplier while the inflated extra amount was sent to accounts of the parent company of EIF in Mauritius, the DRI had claimed. According to the DRI, EIF was “owned and controlled” by Vinod Shantilal Adani, the eldest of the Adani brothers. The DRI has alleged that the Adani firms transacted with EIF, a related party, to siphon off money abroad.

READ | Adani firm moves Singapore court in attempt to block information to DRI

The Customs appeal disputed one of the crucial findings of the adjudication order, which had accepted the 220 per cent mark-up of the imports by the two Adani firms, stating that the contract price between APML/APRL and EIF has been arrived at independently through international competitive bidding.

The Customs appeal has alleged that the international competitive bidding was a “sham process”. It claimed that EIF had signed the contracts with the OEM — Shanghai Electric Company — in July 2009 nearly two months before the global tender for Tiroda Plant of APML was floated in September 2009.

Similarly, the appeal alleged that in the case of Kawai power plant of APRL, EIF had signed the contract with the OEM in November 2009, 12 days ahead of submitting the bid through the international competitive bidding process.
The Customs appeal also said that Singh’s view, that the transactions of APRL and APML with EIF were conducted at arm’s length on the basis of an assessment order of the Income Tax authority, is “not legal”. The appeal argued that the definition of associated enterprises under income-tax norms is “incomparable” with the related party concept under the Customs Act.

It stated that the Customs Act 1962, and the valuation rules deal with each individual transaction involving import of goods between a related party and relatable costs and services. The Income Tax Act 1961, it said, deals with all transactions of goods and services between associated enterprises having an influence on overall profit or expenditure of an assessee under the income tax.

“In related party transaction, an enterprise may be charged for under-valuation or over-valuation of goods in a transaction but the same enterprise may pass the test under the Income Tax Act 1961 for not having biased profit and expenditure between associated enterprises and vice versa. The mode, manner and procedure for assessment of actual transaction between related party under the Customs Act 1962 cannot be equated with the benchmarking method of the Income Tax Act,” the Customs appeal argued.

The appeal alleged that EIF, APML and APRL failed to produce evidence to support the UAE entity’s credentials as a genuine bidder having prior experience of executing Engineering Procurement and Construction (EPC) contracts. It also claimed that the contracts between EIF and the two Adani firms were “equipment supply contracts and not EPC contracts”. When contacted, an official spokesperson of the Adani Group declined to respond in detail to a questionnaire sent by The Indian Express on the allegations levelled by the Customs department in its appeal.

In an emailed statement, the spokesperson said: “The Adjudicating Authority after dealing with in detail the show cause notice (SCN), set aside all the allegations and dropped the SCN against APML & APRL. It has been held by the Adjudicating Authority that all the imports were genuine, being undertaken at arm’s length, and concluded that the value declared is correct and the value (is) not required to be redetermined. Please note that the subject order demonstrates that we have complied with the applicable laws and the transactions are conducted within the framework of law. Since the matter is currently sub-judice before the Hon’ble Appellate Tribunal, Mumbai, we cannot offer any detailed explanation at this point of time.”

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Days out from the introduction of the Notifiable Data Breach (NDB) scheme, new figures suggest around half of Australian small businesses still aren’t confident they can comply with its requirements.

Also struggling on the compliance front is the government’s cloud-adoption strategy, which is sagging under the weight of its security evaluation requirements and has adopted a new approach that may help government agencies move more confidently towards secure cloud adoption.

The use of Apple and Cisco equipment is translating into cheaper cyber insurance, reflecting a security posture that represents less risk for insurers.

Blockchain may still be in its early days, but the technology has many potential applications in security.

Adobe disabled the debut zero-day from a North Korean hacking group, while CrowdStrike redoubled its efforts in Australia and the APAC region as greater demand for endpoint protection drives stronger industry interest in the region.

Details of people on state benefits could be handed to energy firms so they can give them special rates.

The plan, under consideration by the government, is intended as a new approach to help people who are struggling to pay their energy bills.

It would allow power companies to transfer customers to a special tariff set by the regulator, Ofgem.

Energy Secretary Greg Clark said the proposal would help vulnerable consumers.

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The Department for Business, Energy and Industrial Strategy (BEIS) said data-sharing would take place under strictly controlled conditions and only with customers’ consent.

Safeguard tariff

BEIS said it would open consultation on the proposals on Monday, as it would require a change in the law to allow the necessary data-sharing.

The tariff in question is known as the safeguard tariff cap and was introduced in April last year. It already covers five million people, mainly those on pre-payment meters.

Under the plans, customers receiving specific state benefits would be identified and automatically moved to the safeguard tariff.

Mr Clark said: “The effects of energy price rises are often felt most by those on the lowest incomes, as they are usually on the highest standard variable tariffs.

“These people are at risk of being plunged further into fuel poverty if they are left at the mercy of a broken energy market.

“Enabling energy suppliers to establish who should be on Ofgem’s safeguard tariff cap will help these vulnerable consumers.”

Last week, Ofgem said the savings for people on the safeguard tariff would be reduced from April, but added that it was not designed to be the cheapest tariff on the market.

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