Centre must be fair in taxation on ESOPs – ASSOCHAMMonday, December 06, 2010

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Keeping in view of the proposed amendments in Employee Stock Ownership Plans or Employee Share Plans (ESOPs) in the Direct Taxes Code Bill 2010 and Finance Minister’s recent announcement that the government will try to plug tax leakages through proposed DTC which will make the taxation regime transparent and predictable, the Associated Chambers of Commerce and Industry (ASSOCHAM) has suggested the centre either to annul taxation on ESOPs or make it fair and justifiable on market value basis at prevailing price effective date of grant, while subsequent appreciation should be taxed at realization or sale of capital gains.

ASSOCHAM in its recommendations on the DTC Bill 2010 for effective implementation during allotment reviewed personal taxation, corporate taxation, taxation for non-profit organizations, capital gains, international tax regime, general anti avoidance rules, controlled foreign companies, transfer of pricing and in respect of mergers and acquisitions urged the centre to keep continue the tax value on date of exercise under DTC Bill 2010 to benefit the employees.

The apex chamber feels there is no rationale maintained to compute business income for each business separately due to profit or loss of each business shall have to be aggregated and shortfall if any shall be carried forward to next year.

ASOCHAM noted underpersonal taxationas per current law ESOPs issued free of cost or at concessional rates are taxed on the date of exercise on the difference between fair market value and amount actually paid by the employee which is unwarranted to subject the employee to perquisite tax system. Similarly undercapital gainsit observed period of holding to qualify as ‘long term’ should be provided to be one year in all cases of investment assets and not one year as at end of financial year in case of sale of investment assets which has not born Security Transition Tax (STT).

Underinternational taxationregime intention or definition stated under DTC is not in conformity with this intention as there are more than one place of effective management (PoEM). UnderGeneral Anti-avoidance rules, the very definition is wider and may cover even commercial arrangements but

these have not been done with the sole purpose of obtaining tax benefit. Whereas the definition provides that if tax benefit is one of the purposes of any step under this arrangement then it would be treated as not permissible. Hence suggestion was made certain additional safeguards should be included in the GAAR provisions so as to not frustrate legitimate instances of tax planning and to avoid unnecessary litigation.

Whereas undercontrolled foreign companyregime provinces even a miniscule shareholding by a resident assesses would result in attribution of CFC income in its hands. Hence it is suggested the government for exemption for CFC distribute certain percentage of their income in a year.

News Source : Centre must be fair in taxation on ESOPs – ASSOCHAMMonday, December 06, 2010