Budget 2013-14 is likely to have a package of measures to address concerns related to foreign taxation and transfer pricing.
The finance ministry has asked members of an international taxation and transfer pricing advisory group for comments and suggestions by January 31.
Representatives of three apex industry bodies, Confederation of Indian Industry, Federation of Indian Chambers of Commerce and Industry and Assocham, besides Nasscom and the Institute of Chartered Accountants of India, are among members of the panel, headed by the revenue secretary.
Officials in the know said a number of changes outlined in the list were expected to be part of the Budget proposals.
In international taxation, the ministry is looking at bringing clarity on identification of permanent establishment and attribution of tax in e-commerce.
The focus would be on changes required in the current approach to permanent establishments and issues related to transactions for royalties and technical services.
With rules for attribution of profits and taxation of international shipping, norms for taxation of composite contracts and consortia are also set to be outlined.
An elaborate framework for taxation of hybrid instruments like convertible notes or bonds, dividend-yielding bonds, perpetual debts, profit-participating loans, preferred shares, redeemable preferred shares, subordinate debt, zero-coupon bonds, loans, bonds, debentures, discounted securities and original issue discount securities is also being worked on.
The ministry is set to outline the taxation mechanism for these instruments in the light of tax accounting, regulatory and commercial motives, greater degree of flexibility to investors, tax efficiency, capital taxes and tax deferral and tax arbitrage.
To evolve a just and fair framework for taxation, calibration of domestic laws like the Income Tax Act, Sebi regulations, Companies Act and double-taxation avoidance agreements is also being looked at for hybrid entities -- those with both corporate and non-corporate characteristics, like LLPs.
In the case of transfer pricing, the segments identified for streamlining include determination of arm's-length price of corporate guarantee and guarantee fee.
The norms to fix ALP for cross-border inter-company loans, the financial transaction most commonly found during transfer-pricing audit, is also set to be concretised.
Tightening the rules associated with transfer pricing of the mining sector, keeping in mind the tax evasion, mainly related to mispricing of ores and services, is another area identified for quick action.
Also under consideration is the insurance sector, which has seen significant growth over last decade but not yielded the desired tax revenue.
There is need for a suitable mechanism to decide on ALP in the insurance and re-insurance business.
The diamond sector has also been identified as a high-risk sector with irregularities in pricing of diamond, gold and precious gems leading to tax evasion.
To curb malpractices, the government is looking at bringing in strict ALP computation norms in this business, too.