9911796707
TMI BlogTainted Element Test of Section 96X X X X Extracts X X X X X X X X Extracts X X X X ..... he main purpose of the arrangement is to obtain tax benefit. As current transfer pricing regulations are applicable to international transactions and some specified domestic transactions, a mechanism needs to be provided for the Assessing Officer (AO) to ascertain whether rights, or obligations, created in an arrangement are the same as ordinarily created between persons dealing at arm's length. He should be able to seek expert opinion in this regard from the Transfer Pricing Officer (TPO). Example Y Tech Ltd. is a company resident of country C1. It enters into an agreement with Z Energy Ltd., an Indian company for setting up a power plant in India. It is a composite contract for an agreed price of US$ 100million. The payment h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hore supplies, it may not result in any net gain on reallocation of prices; or where offshore designs are not taxable as per the relevant DTAA. The second tainted element refers to an arrangement which results in misuse or abuse of the provisions of the tax law. It implies cases where the law is followed in letter or form but not in spirit or substance, or where the arrangement results in consequences which are not intended by the legislation, revealing an intent to misuse or abuse the law. Example Under the provisions of a tax treaty between India and country F4, any capital gains arising from the sale of shares of Indco, an Indian company would be taxable only in F4 if the transferor is a resident of F4 except where the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a manner which is normally not employed for a bona fide purpose. In other words, it means an arrangement that possesses abnormal features. This is not a purpose test but a manner test. Concerns have been raised that section 96(2) provides that an arrangement shall be presumed to have been entered into, or carried out, for the main purpose of obtaining a tax benefit, if the main purpose of a step in, or a part of, the arrangement is to obtain a tax benefit, notwithstanding the fact that the main purpose of the whole arrangement is not to obtain a tax benefit. in view of this provision, where only a part of the arrangement is to obtain a tax benefit even if the whole arrangement is permissible, the whole arrangement may be treated as an i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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