 "FM charms US companies with Mayaram panel")
The finance minister asked US companies to set up manufacturing facilities in India as it would be a win-win situation for both the countries. He also raised concerns over the US immigration bill.
Chidambaram informed representatives of US companies -- Microsoft, Lockheed Martin, Boeing, International Lease Finance Corporation (ILFC) among others--about the recommendations of the Arvind Mayaram Committee on enhancing FDI caps in many sectors, and the steps being taken to implement the recommendations.
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The Finance Minister also met US Senator Max Baucus, who is the chairman of the Senate Finance Committee.
The Mayaram committee has recommended that only nine sectors -- FM radio, up linking news and current affairs; print media (news and current affairs);commodity exchanges; stock exchanges along with depositories and clearing corporation; power exchanges; petroleum and natural gas refining and insurance, defence production and security agencies in the private sector -- be categorised as the ones where Indian ownership and control is essential. Hence, it recommended 49% foreign investment cap in these sectors.
This means that minimum cap of 26% on FDI will be raised to 49% in many sectors, including insurance.
The sectors --- banking, multi-brand retail trading, satellite establishment and operations, investment by foreign airlines in domestic scheduled passenger airline -- are proposed to open up for 74% FDI.
The panel suggested that sectors where Indian control and ownership is not material, 100% foreign investment be allowed.
Among these categories fall telecom, mining, single brand retail, pharma, holding companies, asset reconstruction company and tea sector, including plantations.
Chidambaram had earlier said that recommendations may come up before the Cabinet in the third week of July. However, certain ministries like defence have reservations over the recommendations.
The income-tax department on Saturday revoked its recent circular on adoption of profit-split method as a preferred mode for computing tax liability on multinational companies’ development centres in India. It also clarified that another circular, relating to the parameters defining R&D centres, would be suitably modified.
The two circulars, issued in March this year, had drawn serious concerns, especially from technology and pharma companies.
One of the two circulars was on application of profit-split method for transfer pricing, while the other was for identifying development centres engaged in contract R&D services with insignificant risk.
According to the profit-split method, part of parent company’s profit is taken into account while computing the tax liability of its centres. This would have meant a significant jump in tax demand on research & development centres of foreign companies operating in India.
While industry players cheered Saturday’s move, experts said it would avert future trouble in the area of transfer pricing, which is already embroiled in significant litigation.
Chidambaram emphasized the need for U.S companies to set-up local manufacturing bases in
India, saying “it is in the mutual interest of both countries for India to become a large manufacturing base.
The companies appreciated the recent move of the Finance Ministry on transfer pricing.
The income tax department last month revoked its recent circular on adoption of profit-split method as a preferred mode for computing tax liability on multinational companies’ development centres in India. It also clarified that another circular, relating to the parameters defining R&D centres, would be suitably modified.
The two circulars, issued in March this year, had drawn serious concerns, especially from technology and pharma companies.
The Finance Minister also underscored Indian concerns about the provisions in the Comprehensive Immigration Reform Bill relating to skilled non-immigrant visas.
Merger and acquisitions among Indian information technology (IT) firms might go up if the US immigration Bill becomes a reality, say industry experts and bankers.
Experts believe the provision of limiting the proportion of H1-B/L1 visa workers relative to total US employees to 50% will make Indian companies increase their onsite presence. The H1-B/L1 documents are non-immigrant visas that allow US employers to temporarily employ foreign workers in specialty occupations.