Background:

The concept of ‘thin capitalization’ draws utmost attention in the modern group structuring of MNE[1]. Many multinational groups resort to thin capitalization model in order to minimize group’s net tax liability. A company is said to be thinly capitalized when such company is having more debt-equity ratio. Having more debt-equity ratio may cause shifting of profits from one country to other in order to reduce tax liability of the entire group.

The Indian avatar of elimination of abusive strategy of ‘thin-capitalization’ can be seen in the form of Section 94B of ITA[2], which we will be detailing at length at appropriate place. In these series of articles, we intend to cover the background of introduction of thin-capitalization, reasons for introduction of Section 94B and the various issues springing out of inadequate language of Section 94B. In this part, we cover the background and overview of Section 94B and the subsequent parts, the issues will be covered in much detail.

Read more: Thin Capitalization - Restriction of Interest under Section 94B - Next Litigation Saga

Introduction:

As a trade facilitation measure and in order to further ease the process of doing business, the GST Council in its 42^nd meeting held on 05.10.2020 has recommended for quarterly return filing facility for small taxpayers. Based on these recommendations, Government has introduced the scheme of Quarterly Return filing with Monthly Payment of taxes (for brevity ‘QRMP scheme’). This scheme has been introduced to minimize the burden of compliances on small taxpayers having aggregate turnover of up to INR 5 crores. This new Scheme will be effective from 01.01.2021.

Applicability:

A registered person who is required to furnish a return in Form GSTR-3B, and who has an aggregate turnover of up to INR 5 crore rupees in the preceding financial year, is eligible to opt for the QRMP Scheme in the current financial year. However, in case the aggregate turnover exceeds INR 5 crores during any quarter in the current financial year, the registered person shall not be eligible for the scheme from the next quarter.

Read more: All About QRMP Scheme

Introduction:

Sources[1] say that 535 cases involving fraudulent input tax credit (ITC) of Rs 2,565 Crores have been booked so far in the previous financial year. For Financial Year (FY) 2018-19, the statistics were even more staggering with 1,620 cases involving fraudulent ITC claims of Rs 11,251 crore.

Thus, fake invoicing turned out to be a menace in GST implementation and is affecting the GST collections. Government is looking at e-invoicing as effective tool to curb this menace. It has been introduced w.e.f. 01.01.2020 on voluntary basis and is mandatory w.e.f. 01.04.2020. However, the same was relaxed till 30.09.2020 due to myriad reasons. As on date, the Government has implemented the e-invoicing with effect from 01.10.2020.  

Read more: All About e-Invoice

In this edition, we bring you an article on e-invoicing, which is made mandatory for business with turnover more than 100 Crores with effective from Jan 2021. The said article covers all the finer aspects pertaining to e-invoicing. The next article deals with the recent announcement by CBIC in relation to GST filings. The QRMP scheme would relieve the small taxpayers from monthly filing of returns since the returns are now being shifted to quarterly basis. The article covers the background, the modus operandi and other compliances in relation to QRMP scheme.

The next article is on the prevention of abusive strategy of thin capitalisation. In order to prevent such abusive strategy, Section 94B has been introduced in the Income Tax Act. However, there is a deficiency of language in the said section, which will create huge litigation issues. Taking such potential litigation issues, we have contemplated to cover such issues in multiple parts. This edition has the first part in the series.

I hope that you will have good time reading this edition and please do share your feedback. I will also urge clients to mail us topics or issues on which you want us to deliberate in our future editions, so that we can contribute to the same.

Read more: SBS Wiki E Journal Dec 2020