Loophole Games - A Treatise on Tax Avoidance Strategies

With true stories on:
•    Profit Shifting
•    Base Erosion
•    Sham Transactions
•    Tax Heavens
•    Money Laundering
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Description

First edition of Loophole Games was released in April 2019 with loft ambitions of informing business managers, professionals, forensic auditors, and journalists about the extent to which the malaise of tax avoidance has spread its tentacles in India and around the world. Many interesting and structural changes have happened in the world of taxation in this last one year, which prompted me to review the book and come out with an updated edition. The year 2019 saw a sizeable reduction in corporate tax rates in India. The new regime India brought in the year was quite ingenuous. The primary challenge that lawmakers face in designing a national budget is finding a balance between reducing tax rates and providing incentives to priority sectors. The Akhilesh Ranjan Committee on direct taxes had recommended reduction of corporate tax rate and removal of all tax incentives. But the plethora of deductions and exemptions available to various industries cannot be removed overnight. They can only be phased out in a staggering manner. To resolve this dilemma, lawmakers in India have brought a new regime with low tax rate and no incentive, but this new regime does not replace the old regime. The taxpayer has been given the power to choose between the new and the old regime, thus giving more power and discretion to taxpayers. This policy, in a way, pushes for both continuity and change. In line with the recommendations of the Akhilesh Ranjan Committee, the dividend taxation regime has also been changed from dividend distribution tax system to the classical system of taxing dividend. Tectonic changes are happening internationally. Many countries have introduced levies on sales of digital companies, variously called as equalisation levy and digital service tax. There is an international consensus that such stopgap approach cannot be a substitute for a principle-based solution to tax the digital economy, but no singular solution has still been implemented. Equalisation levy presents its own challenges in implementation, especially since imposition of the levy on non-resident e-commerce operators in India in April 2020. Multilateral Instruments (MLIs) between various countries will start becoming effective from April 2020. It is to be seen how the Principal Purpose Test (PPT) clause, anti-fragmentation rule, new definitions of Permanent Establishment (PE) will play out in preventing treaty abuse.
This updated edition critically analyses these recent developments, and the fault lines, if any, that rogue consultants seek to take advantage of.

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Contents
Preface
About the Author
Detailed Content
Introduction: "Don't be Evil"
Part I : Profit Suppression
Chapter 1    Deferral of Revenue
Chapter 2    Exploiting the Mercantile System of Accounting
Chapter 3    Manipulating Segmental Accounts
Chapter 4    SPV and JDA Structures
Chapter 5    Characterisation of Revenue as Capital Receipt
Chapter 6    Rate Arbitrage
Part II : Gain Suppression
Chapter 7    Avoiding Tax through Capital Receipts
Chapter 8    Capital Loss Harvesting
Chapter 9    Structuring through Non-complete Fees
Chapter 10  Bonus Stripping
Part III : Profit Shifting
Chapter 11   Intra-Group Services
Chapter 12  Thin Capitalisation
Chapter 13  IP Migration Strategies
Chapter 14  Cost Sharing Arrangements Used for Tax Avoidance
Chapter 15  Restructuring into a Contract Manufacturer
Chapter 16  Structuring Sourcing and Procurement Activities
Chapter 17  The Dummy's Guide to Structuring
Part IV : Base Erosion
Chapter 18  Permanent Establishment Manipulations
Chapter 19  Taxing the Cloud
Chapter 20  Structuring of OTT Business
Chapter 21  Circumventing the Equalisation Levy
Part V : Sham Transactions
Chapter 22  Use of Third Party Intermediaries
Chapter 23  Colouring Loans as Finance Lease
Chapter 24  Employer-Employee Collusion
Chapter 25  Tax Avoidance through Merger & Acquisition
Chapter 26  Saving Dividend Distribution Tax
Part VI : Trends in Blatant Evasion
Chapter 27  Shell Companies
Chapter 28  Tax Evasion through Stock Exchanges
Chapter 29  Under-Invoicing & Over-Invoicing
Chapter 30  Hawala
Chapter 31  Tax Havens
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Author Details
Smarak Swain graduated in Electrical Engineering from Indian Institute of Technology, Kharagpur in 2006, and joined the Indian Revenue Services (IRS) in 2008. He has also done Masters in Taxation and Business Laws (MTBL) from NALSAR University, Hyderbad.
In the Income Tax Department, he has experience in the fields of corporate and business assessments, tax administration of charitable and religious trusts, investigation, and transfer pricing. He has authored four works of non-fiction and a since fiction, including the book Tangible Guide to Intangibles: Identification, Valuation, Taxation & Transfer Pricing. International law, financial forensics, and geo-economics are his primary areas of interest. He can be contacted at: smaarak@gmail.com
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