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The comprehensive two-page reporting format, called Annual Activity Certificate (AAC) 49C, asks for two dozen different questions on the activities of the Liaison Offices (LOs) set up in the country including the names and locations of such employees who earn more than Rs 50,000 per month.
"The non-resident entities having a liaison office in India have been filing the activity certificate with their respective assessing officers till now under section 285 of the Income Tax Act. But they were being done in a random fashion.
"The new format is to bring uniformity in the system and it comes into force from this financial year," a senior department official said. The form 49C informs the I-T about the financial activity of an overseas business entity in the country.
The Union Finance Ministry, according to sources, had last year asked I-T field formations to prepare a comprehensive reporting format in this regard as the department had to face difficulties while pursuing some cases with regard to cases of transfer pricing and capital gains.
"India is witnessing a steady increase in the number of such offices and according to estimates there could be more than 300 LOs in the country at present indulging in overseas mergers, acquisitions and trade," the official said.
According to the latest Finance Ministry data, "mis-pricing (in cross-border deals), which is one of the main and new methods of transfer of illicit funds outside the country has resulted in detection of mis-pricing of Rs 33,784 crore in the last two financial years as against detection of trade mis-pricing of Rs 14,655 crore in the last five fiscals". .
So, while an overseas business firm had to furnish the RBI permission it had received for opening a liaison office in India under the Foreign Exchange Management Act (FEMA) laws, it will now essentially also have to report the I-T details of "any salary or compensation of any sort payable outside India to any employee working in India or for services rendered in India."
The I-T department, according to sources, will now save this information in an electronic format so that it could access it quickly when it comes to scrutinising any tax related information of such business entities.
"The department has just streamlined the reporting format in this domain. It is like the other Income Tax forms. While deciding taxation cases in cross-border mergers and deals such information is very vital from the stage of sending notices to raising the actual tax liability," the official said.
Amongst other requisites, the foreign business houses need to furnish details of all purchases, sales of material and services from/to Indian parties during the year by the non-resident person, names and addresses of the top five parties in India with whom the LO has been doing the liaisoning, details of group entities (with addresses and PAN, if available) present in India as branch office or companies or Limited Liability Partnership (LLP), incorporated in India and nature of their business activities.
The foreign business houses need to furnish these details to the taxman under the name of a registered Chartered Accountant and will also have to report if any group entity is operating from the same premises as the office of the LO submitting the annual activity certificate.
