“One Person Company” concept introduced in India

Recently Companies Act 2013 was enacted in India. One of the concepts that was introduced for the first time is OPC or One Person Company concept. Practitioners of the erstwhile Companies Act of 1956 never could imagine that a Company can be formed just by one person! However, siding with the developed countries’ corporate laws, this certainly is a welcome change. It is remaining to be seen as to how the concept will be received by the business as well professional community in India.

The Companies (Incorporation) Rules, 2014 provides as following:

  • A natural person who is an Indian citizen and resident in India shall be eligible to incorporate an OPC and to become a nominee for the sole member of the OPC.
  • Corporations, foreigners or a non resident individual cannot incorporate an OPC;
  • A person cannot incorporate more than one OPC or become a nominee in more than one OPC. However, such a person can be a member of one OPC and nominee of another OPC;
  • Where a member of an OPC becomes a member of another OPC by virtue of his nomination in that second OPC, he shall opt out of either one of the OPC within a period of 180 days;
  • A minor cannot become a member or nominee of an OPC or hold shares with beneficial interest; An OPC cannot carry out NBFC activities including investment in securities of anybody corporate.
  • Every OPC will mention “One Person Company“ in brackets below the name of such company wherever it is printed, affixed or engraved. Hence, the name should be mentioned as “ABC  (One Person Company)“  and not any other way.

It is perceived that the new development will not be attractive from the Indian income tax point. Indian tax law imposes a secondary tax on dividend (called distribution tax) on the Companies. If OPC has to pay the dividend tax, it looses its attractiveness as compared to a sole proprietorship.

It will be interesting to watch the evolution of the concept and see if the law will accommodate foreign investors and allow them to use OPC in future.

Tax tribunal in India rules database access fees as royalty – implications for US companies

In the case, the taxpayer (ONGC) was an Indian resident company engaged in the exploration and development of natural oil and gas. ONGC subscribed to an online database maintained by Wood MacKenzie (WM), a U.K. resident company. The subscription, which provided information on the global oil and gas industry, required ONGC to pay a fee to WM in exchange for a license agreement that provided for an exclusive and non-transferable right to access and download information from the site. No right to sublicense was granted to ONGC under the license agreement and the use of the information was limited to what was specified in the agreement. The website was only accessible by select ONGC employees and WM provided two days of training per year to 20 ONGC employees on technical issues related to oil and gas exploration.

The Indian Income tax Appellate Tribunal ruled that the fees paid by ONCG are properly characterized as royalties, for Indian tax purposes, under both Indian domestic law and the India-UK double taxation treaty. It was therefore subject to the applicable withholding tax according to the treaty.

Number of U.S. based companies provide the database subscriptions services to the users in India. They should closely study amd monitor the case as this may have deep implications for them.

IRS tightening grip – issues proposed regs on information reporting by U.S. passport applicants

IRS has issued proposed regs that set out rules on information reporting by passport applicants under Code Sec. 6039E.

Any individual who applies for a U.S. passport, or the renewal of a passport, or applies for the privilege of becoming a permanent U.S. resident  (green card application) must include with that application a statement containing certain items of tax information. (Code Sec. 6039E(a)) The information that must be included by both passport and immigrant applicants includes the applicant’s taxpayer identification number (TIN), if he has one. (Code Sec. 6039E(b)(1))

The 1992 proposed regs provided guidance for both passport and permanent resident applicants to comply with information reporting rules under Code Sec. 6039E, and indicated the responsibilities of specified federal agencies to provide certain information to IRS. Proposed regulations issued January 25th, replaces the 1992 regulations.

The new proposed regs under Code Sec. 6039E would require an individual applying for a U.S. passport, other than an individual who applies for an official passport, diplomatic passport or passport for use on other official U.S. government business, to provide certain information with his passport application. (Prop Reg § 301.6039E-1(a))

The passport applicant would have to provide:

(1) the applicant’s full name and, if applicable, previous name;

(2) address of regular or principal place of residence within the country of residence and, if different, mailing address;

(3) taxpayer identifying number (TIN); and

(4) date of birth. (Prop Reg § 301.6039E-1(b)(1))

The required information would have to be submitted with the passport application, regardless of where the applicant resides at the time it is submitted. (Prop Reg § 301.6039E-1(b)(2))

IRS could impose a $500 penalty amount on any passport applicant who failed to provide the required information. (Prop Reg § 301.6039E-1(c))