1. Compliance under Companies Act, 2013 :
Section 188:
License fee paid by subsidiary co to its foreign holding company falls under Sec. 188(1) (d) of Companies Act, 2013.
- availing or rendering of any service.
Section 188 need to be complied.
Whether transaction with foreign holding company falls under section 188??
- Though sec. 2(20) company means company registered under this act or under any previous company law.
- sec. 2(76) definition for Related party transaction (RPT) is wider and it covers Body Corporate( Body corporate includes company incorporated outside india).
Section 188 to be complied.
Important Note:
You need to check whether value of transaction actually needs Board resolution or special resolution u/s. 188.
In case of listed co:
- comply clause 49 (revised) listing agreement.
- policy of RPT Should be attached in annual report nd published in their website.
FURTHER INFORMATION:
check whether Foreign Holding company falls under definition of sec. 379 of Companies Act, 2013 - Application of Act to Foreign companies incorporated outside India.
If yes, Foreign holding company should disclose RPT defined u/s 2(76) in their Financial statement and filed with ROC u/s. 381 read with Rule 4(2)(a)(i) of Companies (Registration of Foreign companies) Rules, 2014
. Compliance under Income Tax act, 1961:
Section 9: Income deemed to accrue or arise in India
Fees for technical services falls under section 9(1)(vii) :
- Income by way of fees for technical services payable by resident (subsidiary company) for the services utilized in india.
Tax Incidence of Foreign Holding company:
-Income deemed to be accrue or arise in india is taxable in their hands.
However such income is exempted under sec. 10(6A) in the hands of foreign company if tax is paid by subsidiary co in relating to fees for technical services.
Rate of Tax to foreign co:
Based on agreement entered date and permanent establishment(PE) Section 44DA or section 115A shall be applied.
: 3. Compliance under Accounting standards:
As per As-18 issued by ICAI :
- RPT and Nature of Relation should be disclosed in annual report.
[3:29am, 09/01/2015] Ranjith Cs: 6. From the point of TRANSFER PRICING:
Price of fees for technical service shall be accounted by using methodology of Transfer pricing @ arms length price.
Transfer pricing should be calculated by registered valuer.
Your transaction falls under section 92A and 92B of Income tax act.
-various methodology for Transfer pricing is given under sec. 92
: 5. From the point of DTAA:
Central Govt has power to enter agreement with foreign countries u/s 90 of Income Tax act, 1961 to avoid double taxation etc.,
Check any agreement entered with foreign country where your FOREIGN HOLDING COMPANY IS RESIDENT.
If DTAA exists, then normal provisions of Income Tax act shall apply to the assessee to the extend they are more beneficial to him.
