Author name: CBCL

[By Priyansh Sharma & Sejal Gupta] The authors are students of Institute of Law, Nirma University.   Introduction Unleashing the power of collaboration across geographical boundaries, secondment of employees has become a prevailing tradition between entities spanning different locations to send employees over, be it for temporary ventures or on project basis. However, amidst this intriguing tale, the tax landscape unveils its ever-changing twists and turns. Picture this: In the month of May 2022, the Apex court took centre stage, with its ruling in the C.C. C.E. & S.T. Bangalore v. M/S Northern Operating Systems (‘NOS’). With an authoritative voice, it declared that the secondment of employees from global entities to their domestic counterparts falls under the enchanting spell of service tax. Why, you ask? Because, dear friend, all the essential elements for a taxable supply found their harmonious rhythm in this captivating performance. Section 65(68) of the Finance Act, 1994 defines manpower recruitment or supply agency as “any service provided in context of hiring and supplying manpower, either temporary or permanent.” As stipulated under the Indian Contract law, a valid contract must constitute a lawful consideration, similarly an essential component of a supply of service is the ‘consideration’ received in return of that service which can be monetary or non-monetary. In the context of cross border secondment under Schedule III (1) of the Central Goods and Services Tax Act (‘CGST’), 2017, one major contention of the host entity is that it is the employer of the seconded employees during the period of secondment and the GST liability is therefore not arising. It is significant to observe that in an attempt to settle the issue whether secondment of highly skilled workers from the foreign entity to a host entity attracts service tax to be paid by the service recipient i.e., the host entity through Reverse Charge Mechanism (‘RCM’) under Section 9(4) of the CGST Act, 2017, the Supreme Court (‘SC’) settled the jurisprudence pertaining to this, however, there are still grey areas to be filled. Misjudged Interpretations The SC in the NOS judgement noted that although the Indian entity is having managerial control over the seconded employees, the said employees continue to be employed by the foreign entity due to the reason that the seconded employees had to leave for their original employers after the period of secondment is extinguished. The valid question of fact here should be that what relationship the seconded employees and the Indian entity holds during the secondment period, irrespective of these employees’ relation with their original employers before and after the secondment period. The Karnataka High Court had affirmed with this point of view in its recent ruling in M/S Flipkart Internet Private v. The Deputy Commissioner of Income . One more observation made by the SC was that the foreign entity was paying salaries to the seconded employees during the course of secondment. As per the agreements entered by the Indian and foreign entity, the seconded employees will be receiving remuneration from the foreign entity for the availment of social security benefits accrued in their home countries. These payments were later claimed as reimbursements from the domestic entity. One would argue that the seconded employees remained under the employment of the foreign entity due to the said setup of salary disbursement. However, the SC had answered this contention in the judgement only. It was observed that, receiving social security benefits from their home country is a legal requirement under the relevant international laws. It signifies that creating such a setup for salary disbursement is a mandate rather than discretion. It is pertinent to note that the Mumbai tribunal for Customs in M/S Volkswagen India (Pvt.) Ltd. v. Commissioner of Central Excise, has ruled that the nature of transaction cannot be determined by the method of salary disbursal, which effectively concludes this point of discussion that, receiving the money from foreign entity does not affect the relation of the seconded employees and the Indian entity which should be of ‘employee-employer’ in this context. Reimbursements: A Tangled Web of Confusion Section 67 of the Finance Act, 2006 provides for the valuation of taxable services for charging Service Tax. It stipulates that the gross amount of the service is taxable. It means that reimbursements, which are claimed by the service providers from service recipients in receipt of expenses incurred by the former while providing the service will be excluded from ascertaining the taxable value of service. The picture becomes inverted with the introduction of Service Tax (Determination of Value) Rules, 2006. It includes all such expenses which are incurred by the service provider while providing service i.e., reimbursements, under the ambit of taxable amount. In 2012, the issue of whether reimbursements would be considered while calculating tax liability on services was dealt by the Delhi High Court in Intercontinental Consultants & Technocrats P. Ltd. v. UOI, wherein it observed that reimbursements are not for services per se, but for the expenses for providing services, therefore these are not to be considered while computing the taxable value. The above-mentioned Service Tax Rules were declared inconsistent with Section 67 of the Finance Act. However, since 2015, with the amendment in the definition of ‘consideration’ in the Finance Act to include ‘reimbursable expenditure’ in the value of service, it muddles the legal position which was settled before. In 2018, the SC, while again considering the same issue, in Intercontinental Consultants & Technocrats P. Ltd. v. UOI, has reiterated the position which was held by the Delhi High Court in 2012. This effectively signifies that the validity of the amendment brought forward to alter the definition of ‘consideration’ holds no value post this judicial precedent. The position related to reimbursements were deemed to be settled, however the dilemma of misinterpretations on this issue exists since the ruling of NOS. The SC has held that the foreign entity has seconded its highly skilled employees to the Indian entity and the said setting is a ‘supply of manpower service’ and due to

[By Riya Sharma] The author is a student of Institute of law, Nirma University.   Introduction The realm of international tax law is nowhere defined with its treacherously advantageous nature in the Indian income tax system. It also spans the complex web of virtual currencies that are used in the digital world. This complex scenario creates a predicament where residents of one country may earn income from foreign sources, leaving both nations with legitimate claims to tax that wealth and the power to enforce their respective rights. Inevitably, this situation leads to a potential loss of revenue as either country may need to relinquish its right to levy taxes on such income. The G20 meeting brought forth discussions on the mounting apprehensions surrounding digital virtual currencies and their consequential market.[1] As a response to these emerging needs, a committee report was released, delving into an analysis of the digital currency market, notably addressing the aspect of taxation.[2] However, the current scenario reveals a fragmented landscape, with each country independently formulating tax laws pertaining to digital currencies. Consequently, a notable gap persists in the domain of international law and to adequately handle this changing paradigm, its development is required through the establishment of comprehensive and coordinated international tax frameworks. International collaboration and the development of unified guidelines can contribute to a fair and efficient system, ensuring that tax obligations are appropriately addressed without creating undue burdens or revenue losses for any country involved. Navigating The Challenges The taxation of Virtual Digital Assets (VDAs) presents two primary challenges that require international tax law guidance. Firstly, in cases where a transaction involves two countries and the Double Taxation Avoidance Agreement (DTAA) is silent on the taxability of such income, it becomes unclear which country has the right to tax the income generated.[3] Due to the conflicting nature of the relevant jurisdictions, international tax law is necessary to clarify the distribution of taxation rights in cross-border VDA transactions. Secondly, the valuation method for determining the taxable income generated by individuals through VDA transactions is another crucial issue.[4] Accurately determining the taxable value of such transactions is challenging at the moment because there isn’t a standardized valuation technique available. By creating clear rules and a standardized method for valuing VDAs for taxation purposes, international tax law should address this valuation challenge by providing clear guidelines and establishing a consistent approach. Taxation for Cross–border transactions The Indian domestic law, specifically Section 115BBH, states that VDAs are subject to a 30% tax rate on capital gains upon transfer[5]. However, this section does not explicitly address the tax treatment when the individual is a non-resident of India. Consequently, it raises questions regarding the taxation of income accrued while residing outside India or if the source of income is located outside India as per the definition of accrual provided in the income tax act.[6] The lack of clarity in this regard necessitates a comprehensive interpretation of the applicable tax laws and potential guidance from Indian tax authorities to determine the tax liability in such situations. The international nature of cryptocurrency transactions creates specific taxes issues. With the help of cryptocurrencies, people may conduct transactions without using real money or conventional financial intermediaries in a borderless digital world. However, because cryptocurrencies are digital, it can be difficult to determine how to manage them tax-wise, especially for those who are subject to DTAA. At this time, neither current DTAA treaties nor international tax legislation give any precise instructions on how to tax Virtual Digital Asset transactions. As they struggle to determine the tax liabilities related to these transactions, tax authorities, and taxpayers are both left in the dark by this lack of transparency. The absence of guidelines from international authorities, including the OECD, regarding the taxation of cryptocurrencies has resulted in countries implementing their own tax laws, often imposing tax rates  as high as  30%. This discrepancy in tax treatment compels individuals to explore alternative methods, including trading in tax havens, in an attempt to mitigate the tax burden. Unfortunately, this situation has also given rise to scams on a large scale, as exemplified by the case of FTX.[7] Addressing this issue requires international cooperation, the development of clear guidelines, and effective measures to prevent tax evasion and fraudulent activities associated with cryptocurrencies. The efforts to establish a clear international tax framework for cryptocurrencies are crucial. By developing specific provisions within DTAA treaties and international tax laws, countries can ensure consistency and fairness in taxing cryptocurrency income. Absence of Methodology for Valuation The absence of procedures for valuing cryptocurrencies in India’s current laws makes it difficult to calculate their taxable worth. Despite the ease with which cryptocurrencies may be exchanged for fiat money anywhere in the globe, the precise procedure for valuing them for tax reasons is not specified. The valuation of VDAs presents a challenge in the Indian context. While VDAs are considered property under Section 56(2) of the Income Tax Act,[8] the specific valuation method for VDAs is not outlined. The Fair Value method as defined in Rule 11UA of Income Tax Rules,[9] does not explicitly cover the valuation of cryptocurrencies and other VDAs, and no proposed modifications have been made to address this gap.[10] In situations where an individual is subject to taxation in India but receives income in a wallet based in another country, determining the appropriate valuation becomes crucial. There are two options: using the amount in the other country or valuing the income in India at the time of taxation. However, clear guidelines and direction from Indian tax authorities are needed to address this valuation dilemma in cross-border scenarios involving cryptocurrency income. Indian tax authorities may assist in creating transparent and uniform standards for valuing digital currency revenue, maintaining fairness in taxation, and encouraging compliance by giving explicit clarity and direction. Potential Tax Regulations In the regime of global taxation, two distinct jurisdictions prevail: source nation-based jurisdiction and resident nation-based jurisdiction. The majority of jurisdictions, like the United States of America and China, use both concepts in their

[By Tanya Verma] The author is a student of Dr. Ram Manohar Lohiya National Law University.   INTRODUCTION In the Budget 2022, the Finance Minister introduced a provision to impose income tax at a rate of 30% on profits obtained from the transfer of virtual digital assets (VDAs), although a clear provision still lacks, an attempt to shed clarity on VDAs and their exchange has been made. To that, this piece provides an in-depth analysis of the tax implications surrounding direct and indirect taxation, specifically focusing on the complexities involved in determining the taxable nature of winnings, including digital assets such as bitcoins and tokens, that are received as rewards from online games. Further, the article explores legal literature surrounding the skill-chance dichotomy inherent in online gaming and contributes to the existing discourse around technology driven transactions as rewards. VDAs UNDER INCOME TAX ACT Previously, income earned from cryptocurrencies was taxable based on the nature of the activity. Individuals involved in cryptocurrency investment were taxed under Income from Capital Gains or Income from Other Sources, as per IRS provisions. On the other hand, individuals engaged in cryptocurrency trading were taxed under Income from Business/Profession.However, this classification changed with the introduction of the Finance Bill, 2022.The author believes, considering the unique characteristics of online gaming in India and the necessity for specific regulations regarding taxation, the government has taken steps to address this, however a clear framework still lacks. In terms of income tax, if an individual sells bitcoins received as gaming rewards, the resulting gains would be taxable. The tax treatment of these gains can vary depending on the intent of the individual, whether they classify the gains as business income or capital gains. Previously, there was no dedicated provision for the taxation of online gaming. Instead, Section 194B of the Income Tax Act (ITA) was applied, which dealt with TDS deduction by person who is “responsible for paying to any person any income by way of winnings from any lottery or crossword puzzle or card game and other game of any sort in an amount exceeding ten thousand rupees.”Additionally, Section 194BB covered TDS deduction for horse racing and wagering. Furthermore, Section 115BB of the Act imposed a 30% tax rate on winnings. Though these provisions existed, it failed to provide an exact framework involving technology driven transactions or a settled position of earnings from games, be it that of skill or of chance. The Finance Bill 2023 introduces two new sections under ITA to regulate winnings from online gaming: Section 115BBJ: This section states that net winnings from online games will be subject to a 30% tax rate, effective from April 1, 2023. Section 194BA: This section mandates the deduction of tax at source at a rate of 30% on winnings from online games, effective from July 1, 2023. Together, these provisions signify the government’s intent to establish a comprehensive framework for taxing and regulating winnings from online gaming. The introduction of specific tax rates and the requirement of tax deduction at source aim to facilitate better monitoring, compliance, and revenue generation in the evolving landscape of online gaming, primarily under direct taxation provisions. VDAs UNDER GOODS AND SERVICES TAX (GST) GST Act lays no specific definition for cryptocurrencies or digital assets, new provisions provide that VDAs cannot be classified as money or securities and are considered as goods for GST purposes. Additionally, the Central Board of Indirect Taxes and Customs (CBIC) has opined that cryptocurrencies are not treated as currency but rather as goods or services, which is important to note as currency is not taxable under the same, while goods and services are subject to taxation under different slabs. Crypto-related activities, including mining, exchange services, wallet services, payment processing, barter systems, and other transactions, require classification as either goods or services to determine the appropriate treatment. However, for determination of tax rates, there is no specific Harmonized System of Nomenclature (HSN) code for digital assets. However, HSN code 960899, which pertains to other miscellaneous articles, is often used with an applicable GST rate of 18%, the highest in that category. To understand how this is implemented, it is important to delve into the skill versus chance discourse. In a significant development last year, the Online Gaming Industry faced a major upheaval when the Department issued a Show Cause Notice to Gameskraft, demanding an extraordinary sum of Rs. 21,000 crores taxing as Goods at a rate of 28%,  however, the Karnataka High Court delivered a landmark judgment addressing the concerns related to the key questions in the GST-related litigation for the Online Gaming Industry are: Skill-based or chance-based: Are the games considered skill-based or games of chance (betting/gambling)? Taxable amount: Should GST be levied on the full amount pooled by players or only on the platform fee charged by Online Gaming Platforms? Addressing the first prong, the Supreme Court established that competitions requiring a significant degree of skill are not considered gambling. If a game is primarily based on skill, even if it involves an element of chance, it is classified as a game of ‘mere skill.’ The Court relied on the Supreme Court’s judgment and determined that Dream11’s fantasy sports predominantly rely on users’ superior knowledge, judgment, and attention, making it a game of skill rather than chance. Similarly, the Bombay High Court analysed Dream11’s Fantasy Games and concluded that they do not involve betting or gambling since the outcome is not dependent on the real-world performance of any particular team on a given day. Rajasthan High Court reached a similar conclusion and dismissed a Public Interest Litigation, stating that the issue of treating the game ‘Dream11’ as involving betting or gambling has already been settled. As for the second limb, the target of taxation, in the context of GST, can vary depending on the specific circumstances and regulations of a particular jurisdiction. However, in general, both players and the platform can be subject to GST. Players may be liable to pay GST on in-game purchases