Globally, large corporates including MNCs find themselves in the harsh spotlight of the tax administration. While India is no exception, recent interactions between many large corporate tax- payers and tax departments have largely been confrontational. Often, ever-burgeoning tax collection targets are said to be the primary culprit behind large tax demands, which often don’t stand the test of tribunals and courts.
Lack of understanding of cross-border business operations is another root cause of agony for MNCs, as has been witnessed in the spate of transfer pricing litigation relating to marketing intangibles. In this backdrop, there is an urgent need for the Tax Administration Reform Commission, headed by Parthasarathi Shome, to look into the tax administration of large corporate taxpayers.
One may have thought the Large Taxpayer Unit (LTU) system, a single-window tax facilitation centre, would have been welcomed by India Inc. Under the LTU system, each large taxpayer who has opted to be covered is assigned a senior tax official as a single-point contact. Taxpayers engaged in the manufacture or service sector that have paid excise or service tax dues of more than Rs 5 crore or advance corporate tax of Rs 10 crore or more can opt to be covered by an LTU. In addition, the option to transfer any excess Cenvat credit – of central excise duty or service tax – accumulated in one unit to any other eligible unit is a big advantage for taxpayers having pan- India manufacturing units.
On paper, the LTU system is designed to reduce tax compliance costs and delays for large taxpayers. In turn, it also facilitates tax administration to ensure tax compliance: data mining, for instance is easier. Large corporate taxpayers anywhere in the world place a premium on the ability to finalize their tax positions in real time, which helps them minimize unpredictability in business operations.
LTUs are used by governments to create mutual trust, usher transparency and resolve issues in a time-bound manner, resulting in effective tax administration and collection. It is important for officials manning LTUs to understand business perspectives – an improved economic and com- mercial understanding is vital. Unfortunately, in India, LTUs are perceived as hunting grounds for tax administrators.
The Large Business Service (LBS) system in the UK currently covers 770 companies. It is structured on sectoral lines that aids in understanding the dynamic commercial environment in which different businesses operate. The sector leader also supports client relationship managers (CRMs) who are allocated to each taxpayer.
Following discussions with each taxpayer and consultation with tax and sector specialists, CRMs compile a report of perceived tax risks and tax positions and share this with the large corporate taxpayer. Any differences in view are identified and resolved, and the way forward is agreed. To deal with the complexities of transfer pricing, an internal board has been set up, which results in speedy resolutions in a time-bound manner.
Most importantly, LBS officials also recommend changes to legislation when it finds there are gaps or defects in law. Recently, the large corporate forum, comprising of nominated members of large corporate taxpayers and LBS officials, was relaunched. Periodic meetings help in better understanding of business needs and compliance burdens.
LTUs in India first need to adopt such tax-friendly measures, only later can mandatory coverage be contemplated.
