Monday, September 6, 2010

CFC in India – Yes or No?

CFC or Controlled Foreign Corporation is a concept that has been proposed to be included in the Direct Tax Code in India. The concept was originally seeded in order to prevent enterprises from parking their earnings in off-shore tax havens and thereby avoid paying taxes in their home countries. Today, USA, most of the EU countries, Japan, and even countries like Brazil have CFC provision in place; with USA being the first country to have introduced it back in 1962. Now the hot question is whether India should be the next country to join the CFC club!

In India CFC was first proposed back in 2003 by the Vijay Mathur working group on Non-Resident taxation. However, the concept never came to pass until June, 2010 when the proposal for inclusion of CFC in the Direct Tax Code re-surfaced. The debate is on-going and, as one can imagine, most of corporate India is positioned staunchly anti-CFC. However, the concept cannot be brushed aside so easily and should at least be considered, with some exemptions.

Before we disregard the concept, it is important to note the very eminent reasons why the talks of Controlled Foreign Corporation have re-surfaced. From January to May 2007 alone, there were 102 cross-country M&As in India with a total valuation of US $28.19 billion. Sure, with the recent recession there might have been a dip in the M&A activity but the general trend is undoubtedly on the rise. With such speedy globalization of Indian companies, the question does arise as to whether India as a country will lose out on well-deserved tax income from Indian resident enterprises with subsidiaries abroad. Another more obvious concern is whether some of these companies might try to escape paying taxes by diverting their investments to other low tax-paying regimes. Therefore, the concept of Controlled Foreign Corporation is most certainly relevant for India and worth some consideration.

However, it is also true that the concept does come with certain glitches if implemented as it is and these could be problematic to say the least. For instance, if a company with foreign subsidiary is already paying taxes in its land of operation, then implementing CFC will lead to double taxation which, apart from being grossly unfair, will act as a disincentive for companies to expand in the global world that we live in today. There is also an alternate view that, given the current tax code already has many practical issues, the concept of CFC might still be a bit premature for India. We might do a lot better to simplify the entire idea by imposing group taxation for holding companies with multiple entities. This would increase transparency through the group and allow the group to take on consolidated tax planning thereby leaving more room for re-investments.

The planning committee could consider either imposing group taxation or implementing the CFC with certain exemptions. For instance, one way to avoid double taxation through CFC could be to impose CFC only on those companies that own overseas subsidiaries in jurisdictions with either no income taxes or lower rates for taxation than those in India. It may be possible to come up with an exhaustive list of countries for which Indian government would allow tax exemptions under CFC. This is just one of the many ways to make this concept more palpable for corporate India as well as the Indian treasury. As with most things, creating a win-win situation for both parties has to be the most sustainable way to go in the long-run.

Thursday, July 30, 2009

Vision – Mind’s Fetters upon the Soul?

My Visit to the Dilwara Temples


India’s rich architectural heritage draws people from all over the world. The Red Fort and the Jama Masjid in Delhi, the rock-cut caves of Ajanta, the Meenakshi temple in Madurai, and the Taj Mahal, Agra Fort, and Fatehpur Sikhri in Agra are just a few of the many architectural marvels that adorn the diverse landscapes of this country. I had the happy chance of visiting one such marvel on my trip to Mount Abu – the Jain Dilwara Temples.

The Jain Dilwara temples of India were built between 11th and 13th century AD and are located about 2.5 kms from Mount Abu, Rajasthan. The complex consists of five legendary marble temples that are the sacred pilgrimage place of the Jains. Some consider them to be one of the most beautiful Jain pilgrimage sites in the world. The marble temples have a magnificent entranceway, and the simplicity in architecture reflects Jain values like honesty and frugality[1]. The temples are cradled by a range of forested hills which only add to the heavenly experience of being in the midst of such divine architecture.

Jains are known to have built some beautiful temples at other locations in Rajasthan but it is said that none come close to the Dilwara temples in terms of beauty, style, intricacies, and architectural perfection. Personally, even without having visited any of the other Jain temples, I would not dare to question this claim.

At the main Vimal Vasahi temple which was dedicated to the first Jain Tirthankara, Adinath, each pillar, arch, corridor, and mandap is uniquely carved with such intricate details that seem humanly impossible – and to think that the temple was built at a time when the only tools available to man were hammer and chisel! The carvings feature designs of lotus-buds, petals, flowers, and scenes from Jain and Hindu mythology.

As I stood at the centre of the main mandap in the Vimal Vasahi temple, gazing in awe at the beautiful carvings of the dome my friend proclaimed, how with all our resources, technical know-how, and intelligence it would be impossible to create a monument even remotely as fabulous as the Jain Dilwara Temples. Surely he was right, though I could not help but wonder why? On further contemplation I could only think of one possible reason why with such unlimited capabilities we might have become so limited in our abilities. The answer lies in the very educational system that makes us capable today. It lies in our upbringing and in our incredibly structured manner of thinking and rationalizing. We are told that before you create you must visualize. We try to visualize everything – life, career, marriage, the size of our business, the new house. We are repeatedly told that success cannot be achieved without a vision. I would be foolish to claim that this teaching does not have considerable merit – however I cannot help but notice that in the process of excessive visualization we lose something. We sacrifice our abilities to achieve the impossible; that which cannot be visualized. That which has never been.

The Jain Dilwara temples are unbelievably marvellous, but they could never have been if the creators of the temples decided to sketch out every last rose-bud that was to be carved onto the pillars of the temples. With our uncanny ability to visualize and plan our lives to the very last T, must we not factor in the possibility of the impossible? Must we not let our imaginations run wild and our creations wilder?

Does the mind put fetters upon the soul?



[1] http://en.wikipedia.org/wiki/Dilwara_Temples

Friday, April 17, 2009

Experiments with Truth

Jamal Malik, an eighteen year old orphan from the slums of Mumbai in the movie Slumdog Millionaire, knows that a hundred dollar bill has the portrait of Benjamin Franklin but does not know what is written under the national emblem of India. He does not know if truth alone, lies alone, fashion alone, or money alone triumph! Strange isn’t it? As the inspector in the movie rightly exclaims – a five year old kid would know the answer to that question! It is one of the first things we are taught in school; to never tell a lie. It is one of the most important lessons taught to us by our parents; to always speak the truth! Heck it is what the father of this nation (Mahatma Gandhi) lived and died for. Satyameva Jayate (Truth Alone Triumphs). How hard can that be? But what does an orphan from the slums know about the truth when his entire life has been filled with deceit, injustice and hunger. What does this boy know of speaking the truth when at the age of ten he watched his mother being slaughtered in front of his own eyes by the so called “patrons of the truth” – followers of Rama? His entire life has been a quest for money so what does he know of the truth?

We have the habit of categorizing everything; good or bad, right or wrong, black or white. We categorize and then we take sides. I guess it is what lets us sleep at night. However we fail to consider the fact that there is no such thing as a universal truth. Most of the time what one believes to be the truth is in reality only his/her perception of the truth. There is such a thing as the Natural Law which by the simplest of definitions is the unwritten law that is more or less the same for everyone everywhere[1]. Natural law is common to all human kind and is recognizable by basic human reason. Even a young child knows and demands a system of “fair play”. By virtue of being alive and a part of the society he/she understands the basic concepts of justice and fair play. That is a classic example of Natural Law.

What then is the meaning of truth? Quiet honestly, I do not know the answer to this question. I think that truth is ever-evolving. Mahatma Gandhi named his autobiography The Story of My Experiments with Truth. Here was a man for whom truth was a way of life and yet towards the end he could only come so far as to call the story of his life “experiments with truth”. These experiments included experiments with non-violence, celibacy, and other principles of conduct that are quite distinct from truth, but that is precisely the point. He was seeking his own meaning of truth throughout his life, just as we all are in our own separate ways. What we see, the people we meet and the stories we hear all contribute in formulating an image of this world which we then make the mistake of believing to be the ultimate truth. However we all wear different lenses; lenses of different shapes, sizes and colours, and therefore we all formulate very different images of the same world and that is precisely what keeps the world spinning. If Newton did not see a falling apple as something baffling and abnormal, the world would have known nothing about the law of gravity. The point is not for everyone to agree on one truth, but to speak what they believe to be the truth while at the same time consistently seeking and exploring the truth.

In a world where no two individuals seem to agree on anything and nations are constantly at odds on religious, social and political differences, we could do a lot better if we only acknowledged the simple fact that just like a slumdog sees the world a lot differently than another boy growing up in a high-rise apartment on Worli sea face, people are different – people see different and think different, and that is okay!



[1] http://www.radicalacademy.com/philnaturallaw.htm

Sunday, April 5, 2009

An Avenue for Extortion or a Land of Opportunities?

My trip to Congo


From the time we landed at the airport in Lubumbashi to the following day when we took a two hour road trip from Lubumbashi to Likasi, my mind and heart went through a roller coaster of emotions – everything from empathy, to guilt, to heartfelt distress, and then even simple joy at the sight of a beautiful smile that ran across the face of a young Congolese boy as I handed him a bread roll.

My first view of Congo as our flight was about to land at the Lubumbashi airport consisted of tiny cottages with shiny metallic rooftops, very thinly spread over a vast expanse of extremely green and fertile land. There was also an electric sub-station and a factory that stood quite distinctly on the landscape. As we descended from the aircraft one of my first few words to my father while I was still in a state of bemusement were, “Papa, my lungs suddenly feel clean!” The first breath of air was like a whiff of heaven. I had lived in the U.S. for five years and had traveled to Europe many a time before but never had I experienced such clean and fresh air and such unbelievably beautiful weather. They say that in Congo the temperature never exceeds 32ºC, even in the peak of summer. The air is literally as good as brand new! The truth is that this is true about everything in Congo – everything from the rich and fertile soil, to the thick and lush green landscape, and even to the beautiful and healthy wildlife. It is all brand new and untouched. Sounds like heaven doesn’t it? Well it is, except the inhabitants of this heaven don’t even know its worth.

The Democratic Republic of the Congo is located in Central Africa and is about one-fourth the size of the U.S. The population of the country is estimated to be around 69 million, after accounting for the effects of excess mortality due to AIDS[1]. Median age is 16 years and only about 2.5% of the population lives to be 65 years or older. Degree of risk from major infectious diseases such as bacterial diarrhea, hepatitis A, typhoid, malaria and plague, among others, continues to be very high. This also explains the need to have larger families (average number of children per woman is 6). A Congo based American told me the story of a worker at his factory who did not take so much as half a day’s leave when he lost a son. My American friend was baffled to see him at work the very next day after his son’s demise, and therefore turned to another employee to inquire about the man’s well-being. The employee shrugged his shoulders and said “well that was not the only son he has”! The man was right. He probably has about 4 or 5 other children that he needs to provide for and therefore he has no time to waste! One could only wish that the government of Congo or for that matter the government of any country in general, thought in a similar manner for its people – the people that put their hopes and aspirations into the hands of their leaders and pray that this time they chose wisely.

In a country like Congo, life is cheap and therefore not worth much, as is everything else that grows and breeds naturally. What they don’t have plenty of is money and therefore money holds the highest power. Us Indians are very used to complaining about our corrupt government and the ineffective legal system, and justifiably so. But you don’t know corruption till you’ve been to Africa. I was astonished to learn that the government employees in Congo are paid lower than the minimum wage in India! Their currency is power and they use it generously. The entire legal system in Congo is designed to make a 100% compliance impossible even for the most ideal and god-fearing citizen. As is a well-known fact – a man cannot get away with driving 51 kmph on a 50kmph freeway in Congo, and at the same time a man can get away with murder; the only differentiator being the willingness to bribe.

My trip to the Democratic Republic of Congo was an eye-opening experience to say the least. It is hard to express in a few words what I saw and felt while I was there. ----

However, at the same time I could not help but feel a deep sense of sorrow filled with anger when I saw the great many injustices of the government of Congo. It was frustrating to see so much potential being wasted all for the mere short term personal gains of the self and the family. The rich and the powerful are way too busy gloating in their power and gathering all that they can for themselves and the poor are left with little choice but to do the best that they can (whatever that may be) to make ends meet. Don’t get me wrong; just like in every other part of this world, there are good people in Congo. People who are smart, educated and passionate enough to make a difference against all odds, and I for one was fortunate enough to meet three such people. These people inspired hope and a sense of satisfaction that yes, all is not lost and change will come, even if it takes some time. I would like to end with a quote by Tom Clancy that goes,


“Man is a creature of hope and invention, both of which belie the idea that things cannot be changed.”



[1] https://www.cia.gov/library/publications/the-world-factbook/geos/cg.html