CAduniya.com : CA India Blog

For the second time last week, the Sensex on Friday stood at above the 10K mark. The closing level of 10,099.91 points marked a gain of 4.2 per cent over the previous week’s close. Some positive momentum emerged in the markets last week after a lower Inflation figure of 6.8 per cent was announced (for the week ended December 6). This figure was 1.2 percentage points lower than the previous week’s figure.

Net investment by foreign institutional investors (FIIs) for last week stood at Rs 330.9 crore. The price of crude Oil stood at $40.98 per barrel at the end of last week, falling nearly 7.6 per cent during the week.

The government may introduce provisions in the new direct tax code to prevent misuse of double taxation avoidance agreements India has with other countries. The new code is likely to be unveiled before the year ends. A government official said a discussion paper on the code, a major initiative undertaken under the guidance of the former finance minister and present home minister P Chidambaram, is being fine-tuned. “A discussion paper on the code explaining the rationale behind every change would be placed in the public domain,” the official added. A draft bill on the code may also accompany the paper to enable everyone to express their views on the proposed changes. Double taxation treaties are essentially agreements between two countries that seek to eliminate the double taxation of income or gains arising in one country and paid to residents/companies of the other country. The idea is to ensure that the same income is not taxed twice. In many instance, however , these agreements are misused to evade taxes. This is called ‘treaty shopping,’ where usually residents of a third country take advantage of a tax treaty between two countries. For example, many companies in other countries route their investments into India through Mauritius or Cyprus to take advantage of the tax treaty that these countries have with New Delhi. Both, India-Mauritius and India-Cyprus tax treaties provide that capital gains arising in India from the sale of securities can only be taxed in Mauritius and Cyprus. This means no capital gains tax on investments in securities routed through Mauritius and Cyprus, as they do not levy tax on capital gains. The discussion paper on the code would explore ways to check this treaty-shopping. Mr Chidambaram was actively involved in the exercise of drafting the code.

The government will prevent chartered accountants (CAs) from offering consultancy and advisory services to the companies which hire them for auditing their accounts. This is being done to lend greater credibility to company accounts. The statutory auditors, who vet the financial accounts of a company, will be restricted from providing their corporate clients services such as investment management, actuarial services and investment banking. The proposal forms part of the Companies Bill 2008, currently pending before the Lok Sabha. The move is expected to usher in greater independence in the audit function and infuse greater confidence in the minds of investors on the credibility of financial statements. At present, the statutory auditors are barred from providing accounting and internal audit services for their clients, but are allowed to deliver consultancy and advisory services. Under the guidelines proposed in the new legislation, statutory auditors will also be prohibited from providing services like design and implementation of financial information system, investment advisory, rendering of outsourced financial work and management services. The initiative assumes significance in the wake of a slowdown in the economy where companies may hire consultancy services from their statutory auditors who may turn a blind eye to discrepancies in financial statements. “The proposal seeks to place specific restrictions on the services which a chartered accountant, acting as a statutory auditor, can provide for his client,” says Institute of Chartered Accountants of India president Ved Jain, adding the proposal will help avoid conflict of interests. The move may come as a major damper for many practising CAs who have been providing audit as well as consultancy services for their clients. According to Ernst and Young India director Rahul Roy, the proposal can lead to a great shakeup within the accounting profession. He, however, agreed that the move is in line with globally followed practices.