| UBI first bank to file winding- up petition against UB Holdings |
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Mumbai, 30 March Kolkata- based United Bank of India ( UBI) has filed a petition to wind up Vijay Mallya- promoted United Breweries ( UB) Holdings in the Karnataka High Court, after Kingfisher Airlines ( KFA) defaulted on the loan. The lender had the corporate guarantee of UB Holdings for the loan, which was extended to the grounded airline. On failure to honour the guarantees, as KFA defaulted on loans, the petitioner has invoked the guarantees. Banks can invoke these if the principal creditor defaults. UBI is the first lender to file awinding- up petition, though some of the lessors of aircraft had filed similar petitions. The petition, filed on March 19, is pending for admission in the court. The governmentowned lender has an exposure of about ₹ 400 crore, including both guarantees and loans. The move came after Finance Minister P Chidambaram, at a meeting with chiefs of publicsector banks recently, asked lenders to act tough on corporate defaulters. " We cannot have an affluent promoter and a sick company," he had said. Confirming the development, a senior UBI official said the bank would be aggressive in loan recovery. In October last year, the Directorate General Of Civil Aviation had suspended the airlines' operating permit, which expired in December. Banks had started classifying the KFA account as non- performing from the third quarter of 2011- 12. A large part of the loan was unsecured, so most made 100 per cent provisioning for exposure. |
| Transfer pricing circulars may lead to more litigation |
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New Delhi, 30 March The recent circulars issued clarifying the government's position on taxation of development centres maintained by multinational companies ( MNCs) are likely to lead to an increase in disputes and litigation rather than resolving them, some tax experts have said. Earlier this week, the Central Board of Direct taxes ( CBDT) issued two circulars on transfer pricing issues. Circular no. 2/ 2013 dealt with Application of Profit Split Method ( PSM), while Circular no. 3 dealt with the conditions relevant to identify development centres engaged in " contract R & D (research and development) services with insignificant risk." In case of the first circular, though the subject mentions the application of profit split method, the circular implicitly in some places and explicitly at other places concludes that in case of R & D activities, use of Cost Plus/ Transactional Net Margin Method ( TNMM) is not the appropriate. For example, it mentions that there is no correlation on cost incurred on R & D activities and return on an intangible developed through R &D activities. The circular clearly states PSM has to be applied to estimate the value of intangibles. Application of PSM requires information about the tax payer and the associated enterprises (AEs). The circular requires the taxpayer to furnish the good and sufficient reason for non- availability of such information. It means that tax payer will be required to furnish the detailed information/ documents of the AEs. Even if transfer pricing officer (TPO) considers other methods such as TNMM as an appropriate one, he will be required to make an upward adjustment taking into account transfer of intangibles, location savings & locationspecific advantages, according to the provisions. Samir Gandhi, tax partner, Deloitte, " Though the CBDT is of the view that the circular will help in providing certainty on transfer pricing issues relating to development centre, it seems this may not be exactly true. The circular in fact lays down that PSM is the most appropriate method for R & D centre and not the Cost Plus method. It is possible that this will increase the litigation rather than resolving/ preventing the disputes and may lead to India may not considered as a preferred location to set up development centres." Similarly, the second circular lays down five conditions to be cumulatively complied with. The important being that foreign principals perform most of the economically significant functions involved in development cycle and provides economically significant assets including intangibles. The Indian development centre will work under direct supervision of the principal through strategic decisions and monitoring of activities on regular basis. The Indian development centre will have no legal or economic ownership right on outcome of research. The satisfaction of the above conditions should be evidenced by the conduct of the parties and not merely by the contractual term, according to the circular. Experts said though the emphasis is on the risk in the subject matter of the circular, a lot of weightage is given to the function performed by the foreign principal and the Indian development centre. The only reference to risk is that mere bearing of contractual risk will not be the final determinant. "Further, if the foreign principal is located in widely perceived as low or no tax jurisdiction such as Mauritius or Cayman Islands, it will be presumed that foreign principal is not contracting the risk," added Gandhi of Deloitte. |
| EPFO- NPS turf war: Companies tread neutral ground |
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New Delhi/ Bangalore, 30 March The Employees' Provident Fund Organization ( EPFO) and the National Pension System ( NPS), the two pension scheme operators in the country, seem to be heading for a turf war. The NPS is wooing subscribers from the private sector, earlier a domain of the EPFO. NPS has reported so far, 522 private companies, including Reliance Industries Limited ( RIL), Reliance Group, Colgate Palmolive, Cognizant, Capgemini, Pantaloons and Wipro, have opted for it. However, companies have chosen to remain neutral in their stance. For instance, Wipro told Business standard its relationship with NPS didn't mean an end to its EPFO membership. " NPS is over and above the mandatory contribution towards EPF," said Samir Gadgil, general manager and global head (compensation and benefits), Wipro Technologies. He added for Wipro, NPS was introduced in July 2011, and this was voluntary. Annual NPS funds from Wipro vary according to the contribution amounts opted for by individual subscribers. On an average, annual contribution stood at ₹ 4- 6 crore, Gadgil said. For RIL employees, too, NPS membership is voluntary. In Delhi, the company issued a circular to its employees, asking them to choose between NPS and the company's EPFO pension scheme. An RIL employee said no staff member was being forced to opt for NPS. Infosys said from April 1, it would introduce the NPS option for its employees. " We are looking to facilitate a process where employees can choose to have NPS as part of their retirement benefits from 2013- 14," the Bangalorebased company said. EPFO denies it has lost any of its subscribers to NPS. A senior EPFO official said, " We are not aware of any EPFO subscriber leaving us for NPS. You show us one person who has left us for NPS." Officials in the Pension Fund Regulatory and Development Authority (PFRDA) said their system couldn't track whether companies had entirely shifted from EPFO to NPS. They, however, said a lot of private companies were showing interest in joining NPS. "Many companies from the private sector have joined NPS. But we can't track from where the money is coming. NPS has the advantage of lower costs and higher returns," said PFRDA Chairman Yogesh Agarwal. EPFO gives 8.5 per cent returns to subscribers. As of August- end, 2012, returns offered by NPS stood at six- 11 per cent. Recently, Finance Minister P Chidambaram had exhorted private companies to promote NPS, a call that led to discomfort within EPFO. Analysts say the scales tip in favour of EPFO, as it offers guaranteed returns, unlike NPS. For investors, the primary aspect was security and EPFO had the most reliable fund, said financial analyst Amit Sethi of AMVI Financial. He added the difference in rates wasn't significant. The government wouldn't want to harm EPFO, which had a bigger subscriber base than NPS, he said. EPFO's recent announcement of investment in private bonds, as well as a more aggressive entry into the bond market in general, pointed to better returns in the future, Sethi said. In two years, EPFO returns would stand at 8.759.25 per cent, while NPS returns weren't expected to see such a rise, he said, ruling out a threat to EPFO. While EPFO has a corpus of ₹ 4.5 lakh crore, in four years, NPS has raised only ₹ 28,493 crore. On an average, EPFO adds ₹ 50,000 crore to its corpus every year. EPFO is pushing for an amendment to the EPF Act to raise the salary ceiling for employees from ₹ 6,500 to ₹ 10,000 or ₹ 15,000. This would ensure the scheme is attractive to those earning high salaries as well. EPFO is mandatory for those earning up to ₹ 6,500 a month; for the rest, it is voluntary. Number of Corpus under NPS Employer / Sector subscribers ( in ₹ crore) Central government 11,25,871 17,047 State government 15,85,349 9,780 Private sector 2,02,679 1,254 NPS- Lite 15,79,690 412 Total 44,93,589 28,493 SECURING THE FUTURE A status check on National Pension System NPS subscription Status of NPS implementation by states Number of States States joined NPS 23 States notified joining NPS but have not taken 2 any further steps ( Maharashtra, Tamil Nadu) States not joined NPS ( West Bengal, Tripura), 3 Kerala has given in- principle approval for joining NPS from April 1, 2013 Source: Labour ministry |
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