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    Foreign Corrupt Practices Act (FCPA) and the U.K Bribery Act enforcement actions have increased the pressure on companies to be more proactive to deter fraud and misconduct


    The UK Bribery Act (the Bribery Act) was passed on 8 April 2010 and comes into force on 1 July 2011. Until recently, international anti-corruption enforcement has been largely dominated by the US Foreign Corrupt Practices Act 1977 (the FCPA). The Bribery Act has been cause of some considerable controversy, in particular , given the implication which breadth of some of its provisions may have for British companies operating abroad.


    The Bribery Act, however, represents part of a broader international trend and has an even wider application than the FCPA. While organisations may consider that their anti-corruption procedures are sufficiently robust for the purposes of the FCPA, this may not be the case where the Bribery Act is concerned. It is therefore important for organisations operating on a global basis to be aware of the differences between the FCPA and the Bribery Act and to be prepared for the implications of the Bribery Act coming into force.


    The main differences between the Bribery Act and the FCPA


    Bribery of foreign (public) officials


    Both the Bribery Act and the FCPA make it an offence to bribe foreign (public) officials. Under the Bribery Act a “foreign public official” is defined more narrowly than under the FCPA but still includes (i) anyone who holds a foreign legislative or judicial position; (ii) individuals who exercise a public function for a foreign country, territory, public agency or public enterprise; or (iii) any official or agent of a public organisation.




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    Private-to-private bribery


    The FCPA does not cover bribery on a private level, unlike the Bribery Act, although such conduct can be caught under other US legislation.


    Active and passive bribery


    The FCPA only covers active bribery, that is to say the giving of a bribe. In contrast, the Bribery Act prohibits both active and passive bribery i.e. the taking of a bribe.


    Failure to prevent bribery


    The Bribery Act creates a strict liability corporate offence for failure to prevent bribery (as opposed to vicarious liability) subject to being able to establish that a company has “adequate procedures”. Under the FCPA, however, a company subject to US jurisdiction can be held vicariously liable for acts of its employees and agents. The UK offence extends to acts of “associated persons” which means anyone who performs services for or on behalf of the commercial organisation.




    Under the FCPA it must be proved that the person offering the bribe did so with a “corrupt” intent. The Bribery Act makes no requirement for a “corrupt” or “improper” intent in relation to the bribery of a foreign public official, although the requirement remains for the general bribery offence.


    Facilitation payments


    The FCPA creates an exemption for facilitation payments whereas the Bribery Act makes no such exception. The Ministry of Justice guidance, however, confirms that prosecutors will exercise discretion in determining whether to prosecute. In addition, informal guidance received from the SFO indicates that where it is considering action, it will be guided by the following six principles:


    ØWhether the company has a clear and issued policy.


    ØWhether the company has written guidance available to employees as to the procedures they must follow where a facilitation payment is requested or expected.


    ØWhether such procedures are really being followed (monitoring).

    ØEvidence that gifts are being recorded at the company.


    ØProper action, collective or otherwise, to inform the appropriate authorities in countries when a breach of the policy occurs.


    ØThecompany is taking what practical steps it can to curtail such payments.


    Promotional expenses


    The FCPA provides for a “defence” to promotional expenses in so far as it can be demonstrated that they were a reasonable and bona fide expenditure. There is no such defence concerning promotional expenses under the Bribery Act, in relation to foreign public officials, although the Ministry of Justice has provided some comfort on this aspect in its guidance.


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    Bribery Act vs FCPA - Compartive Study



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    An individual found to have committed an offence under the Bribery Act is liable to imprisonment of up to ten years and/or to an unlimited fine. A company found guilty is subject to an unlimited fine.


    For offences committed under the FCPA an individual can be fined up to US$250,000 per violation and may also be given up to five years imprisonment. A company guilty under the FCPA is liable for a fine of up to US$2,000,000 per violation.


    Key considerations for FCPA compliant organisations


    • Business-to-business or commercial bribery must be taken as seriously as bribery of public officials.


    • Companies should review gift, hospitality and promotional expense guidelines.


    • Companies should reconsider policies that allow facilitation payments and develop strategies to reduce such payments.


    • Companies should formalize or revise risk assessment processes.


    • Companies should expand the scope of their anti-corruption programmes to include all “associated persons” and review third party due diligence, contractual protection and monitoring.


    • Companies should ensure they have adequate procedures in place; they are a complete defence for companies under the Bribery Act and represent significant protection and/or “sentence mitigation” elsewhere.


    The Bribery Act has a significantly wider scope than the FCPA and so FCPA-compliance programs are unlikely to be sufficient to ensure compliance with the Bribery Act. While the FCPA applies only to the bribery of foreign public officials, the Bribery Act covers bribery in both the public and private sectors. In addition, the Bribery Act, unlike the FCPA, does not have exclusion for facilitation payments and so such payments will constitute bribery offences if they fulfill the other criteria. The Bribery Act also creates a new strict liability offence of failure by a commercial organisation to prevent bribery. As the only defence available to such an offence is that adequate procedures to prevent bribery were in place, commercial organisations will need to ensure that their anti-bribery policies are adequate in light of the extensive scope of the Bribery Act.


    The Organization for Economic Cooperation and Development (“OECD”), has recently revised the Transfer Pricing (“TP”) Guidelines for Multinational Enterprises (“MNEs”) and Tax Administrations. Mainly incorporating its guidance provided in the 2015 BEPS reports to align transfer pricing outcomes with value creation and transfer pricing documentation.


    The purpose of the revision is to bring consistency in the guidelines with there commendations & outcomes ensuing from the OECD 2015 Base Erosion and Profits Shifting (“BEPS”) Project along with its alignment with globally recognized Safe Harbour Rules.


    The revised OECD TP Guidelines 2017 (Issued in July 2017) aim to sturdily support& build the international consensus on application of arm’s length principle on cross-border transactions between associated enterprises; and to reduce the compliance / tax burden of MNEs by propagating a consistent mechanism across jurisdictions.


    The key changes have been tabulated below:


    Sl No.


    Revised Guidelines








    ? Fresh guidance in conducting a functional analysis, especially




    around allocation of risks to the parties in a transaction.




    ? Stress on risks being allocated to the parties undertaking the



    risk irrespective the contractual allocation of risks.





    ? Risk ought to be allocated to the party with most control over




    the risk.








    ? Attribution of returns from intangibles to entities performing




    significant of intangibles to entities.




    ? Guidance on approach to deal with transfer pricing on hard to




    value intangibles (HTVI), people functions of development,


    enhancement,  maintenance,  protection  and  exploitation






    (DEMPE) of the intangibles.




    ? The revised UN TP Manual incorporated the above guidance on




    DEMPE functions (development, enhancement, maintenance,




    protection and Exploitation)










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    ? Situations in which a profit split is the most appropriate transfer




    pricing method




    ? How the profits need to be split and the several profit-splitting







    Profit Split approaches

    ? Importance of the master file and local file components in






    splitting the profits




    ? The principal contributions to value creation by entities within




    the group and key group intangibles.








    ? Separate entity approach has been stressed upon.




    ? Taxing rights of the host country are not necessarily exhausted



    Attribution of profits

    by ensuring an arm’s length compensation to the intermediary.


    to PE

    This is against the principles established in SC decision of





    Morgan Stanley (additional attribution is required for a PE even




    if the intermediary has been compensated on an arm’s length







    Certainity on Dispute

    ? Safe Harbour – Bilateral and Multilateral to be agreed upon – i.e



    application of fixed prices/ margins or specific transfer pricing




    methods for a given class of transactions









    Changes to the TP Documentation landscape:


    BEPS Action Plan 13 emphasised three-tiered documentation structure consisting of Master File, Local File and CbC reporting. The revised Guidelines follow the objective of simplifying and standardizing rules in relation to maintenance of TP documentation across jurisdictions. It also targets to provide all the required and relevant information to revenue authorities for conducting effective TP audit proceedings.


    Three objectives of preparing and maintaining a Three tiered transfer pricing documentation, as follows:


    • To ensure that taxpayers give due weightage to transfer pricing requirements in establishing prices;


    • To provide tax authorities with robust information to enable to them to conduct informed risk assessment; and


    • To enable tax authorities to undertake thorough audit.












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    Revised OECD guidelines



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    Concluding Remarks:


    The revised OECD guidelines have certainly taken a new shape and flavour as impacted by the BEPS action plans. The focus was mainly on the PE, Intangibles, Documentation and Comparability aspects of the TP analysis.


    Indian Tax authorities have already started incorporating the BEPS questions as part of their audit procedures and once the official notification of the templates and the disclosure requirements are notified, the real heat of the BEPS Impact on India would be felt.

    SBS DIGEST E Journal July 2017

    Key Topics Covered:

    • AUDIT


    • COMPANIES ACT, 2013

    This article is contributed by Partners of SBS and Company LLP - Chartered Accountant Company. You can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.

    SBS WIKI E Journal July 2017

    Key Topics Covered:

    • AUDIT
    • COMPANIES ACT, 2013

    This article is contributed by Partners of SBS and Company LLP - Chartered Accountant Company. You can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.

    Tags: ,

    In our country construction and infrastructure industry is one of the major sector employing over 9 million workers in the construction activity and this sector plays a pivotal role in the development and progress of the nation and its economy. The workers in this sector are mostly migrant in nature and vulnerable unorganised labour. The nature of work is also characterized by inherent risk to the life and limb of the workers. The work is casual nature and has a very temporary employer employee relationship for short durations. In most of cases, they work through contractors and sub-contractors and they do not have any direct relationship with the principal employer or owner of the project. The project construction works are normally associated with uncertain working hours, lack of basic amenities and inadequacy of welfare facilities. Keeping in view these conditions, the BOCWAct and BOCW Welfare Cess Act have been brought into place by the legislature.


    The BOCWA has defined building or other construction work as the construction, alternation, repairs,maintenance or demolition of or, in relation to, buildings,streets, roads, railways, tramways, airfields, irrigation,drainage, embankment and navigation works, floodcontrol works (including storm water drainage works),generation, transmission and distribution of power,water works (including channels for distribution ofwater), oil and gas installations, electric lines, ……………..but does not include


    any building or other construction work to whichthe provisions of the Factories Act, 1948 (63 of 1948), orthe Mines Act, 1952 (35 of 1952), apply.


    In view of the exclusion of construction work to which the provisions of the Factories Act, 1948 is applicable, the green field factories which are under construction have claimed that the BOCWA and Cess Act will not be applicable to them as the Factory Building plans are approved by the Director of Factories and the construction work is undertaken in accordance with the said approvals by the Director of Factories. Though the factory is under construction it has submitted itself to the control and supervision of the Director of Factories.


    These contentions were reached the Supreme Court and finally it is now a settled law that the factories during the period of construction are not qualified to be termed as ‘Factory’ and they are covered under BOCWA and Cess Act.


    Let us look at the rationale behind this decision. The Factories Act has defined a Factory as any premises including precincts thereof where ten or more workers are working with the aid of power in any part of which a manufacturing process is being carried on. The key issue in the definition is that there should be ‘manufacturing process’.


    The factories act has defined manufacturing process as any process for making, altering, repairing, ornamenting, finishing, packing, oiling, washing, cleaning, breaking up, demolishing, or otherwise treating or adapting anyarticle or substance with a view to its use, sale, transport, delivery or disposal… The construction of the factory is not falling within the definition of ‘manufacturing process’.








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    In addition to the requirement of carrying manufacturing process, to qualify as a factory, there is a requirement of number of workers and operations with the aid of power. The Act defined worker as a person employed in any manufacturing process or in cleaning any part of the machinery or premises used for a manufacturing process or in any other kind of work incidental to or connected with the manufacturing process.


    When there is no manufacturing process, there can be no worker covered under the Factories Act during the period of construction of a factory.


    The new factories during the period of construction do not have any ‘manufacturing process’ and also do not have any worker in accordance with the provisions of the factories act and hence the factory during the period of construction is not covered under Factories Act and it is not a factory till it commences ‘manufacturing process’.


    In view of the above, all the factories during the period of construction are required to be registered and BOCWA and also remit cess in accordance with the provisions of the BOCW Welfare Cess act.


    Now the question remind unanswered is whether cess is payable on the total cost of the project that is including the cost of the machinery in addition to cost of civil construction cost. The authorities implementing the BOCW WelfareCess act are insisting payment on the total project cost of the factory including the cost of the machinery etc.,


    In common parlance, installation of machinery is known as erection and commissioning and not construction. Now the future litigation is likely to be on these aspects with regard to the assessment of cess liability.


    In a matter relating to the welfare cess, the Supreme Court expressed its anguish with regard to collection of over Rs. 27,000 crores as cess and not utilising the same for the purpose for which it is collected under act. It also expressed its view that the money, which should have been spent on the welfare of the labourers, was being spent on administration and advertisements, while the workers are condemned to live miserable life. The bench noted that it was extremely disturbed to find that the poorer people are not getting any benefits from the welfare measure.


    The schemes implemented by A.P.Building & Other Construction Workers Welfare Board are: ( i ) Personal Accidental Death Relief, ( ii ) Permanent Disability Relief, ( iii) Natural Death Relief, ( iv) Maternity Benefit, (

    1. Temporary disability Relief (hospitalisation charges), ( vi) Funeral Expenses, ( vii) Marriage Gift, ( viii) Reimbursement of training in safety and skill development expenses, ( ix) Matching contribution towards Pension Scheme. (x) Vocational training to dependents. In its scheme the Welfare Board has extended support to unregistered workers also in case of accidental death and permanent disability.


    While the observations made by the apex court are very true, the establishments engaged in construction activity should take up the responsibility of registering the beneficiaries that is the construction workers and assist them to claim the benefits provided under different schemes by the Government under the BOCW Act.

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