27 May 2016

800 Companies In India Have Asked Ministry of Labour For Online Labour Law Compliance System In India

Ease of doing business in India is getting lots of attention of Indian policy makers. Whether it is the passing of the Insolvency And Bankruptcy Code, 2016 by the Parliament of India or pushing of the Digital India project by Indian government, businesses are going to be benefited by these exercises.

Indian government is also encouraging submission of online applications and licence requests and is working in the direction of launching a single platform for these purposes. This would not only reduce the number of applications an individual or company would be required to make to Indian government but would also help entrepreneurs in establishing their business in a trouble free manner.

Taking cue from this situation, over 800 companies have submitted a petition to the Ministry of Labour, requesting to make all the labour law compliances paperless , a move that they believe will help arrest the depletion of natural resources and improve ease of doing business. The petition appeals to the government to move all employers and employees' mandatory filing online over the next 24 months as "mandatory paper filing has neither improved the condition of our labour nor ensured better enforcement".

Compliance with labour laws requires corporates to use 500 crore sheets of paper or 6 lakh trees every year. Besides the environmental destruction, the lack of online submissions creates a huge administrative load for employers.

Meanwhile Finance Minister Arun Jaitley has said on Thursday that union government will pursue any amendment on labour laws only after unanimity among all the stake holders and agreed that the issue of minimum wages has to be given serious thought. The government has also unveiled labour reforms to make rules simpler and employee-friendly. It also seeks to do away with arbitrary inspections at factories, reduce paperwork and make India more investor-friendly.

We at Perry4Law Organisation (P4LO) believe that the proposed online labour law compliance system is just a single step in the direction of labour reforms in India. We need a holistic and techno legal policy to bring true labour reforms in India. For instance, as per a recent amendment in France's labour law, the nation's government has made it illegal for employers to send out work-related e-mails after typical working hours. The amendment has bestowed upon the employees the 'right to disconnect' and put their work life on hold when not in office. Similarly, labour law reforms are need of the hour and the ruling BJP government has to win the trust of the opposition for the same. We hope labour law reforms in India would see the light of the day very soon.

13 May 2016

Amazon And Its Sellers Are Facing Investigation In India For Falsely Claiming Central Value Added Tax (Cenvat) Credit

E-commerce is a relatively new concept in India and as such various aspects related to it are still developing. One such aspect is legal issues associated with e-commerce in India especially with conflict of laws issues. E-commerce laws in India are still maturing as we have basic level legal framework regarding e-commerce in India as incorporated in the Information Technology Act, 2000 (IT Act 2000). However, there is no clarity regarding legal or illegal usage of e-commerce platforms in India as on date.

Recently, the Indian government clarified about the Foreign Direct Investment (FDI) in E-Commerce Sector of India. But FDI and taxation related violations are still happening in India as Indian government has not taken a firm stand in this regard. A software for calculating e-commerce exports was also developed by Indian government. Nevertheless, legal violations by big e-commerce platforms of India still continues especially for online pharmacies, telemedicine, online gambling, e-health, m-health, internet of things (IoT), etc. E-commerce disputes resolution is another area that requires urgent attention of Indian government. Technology driven initiatives like e-courts and online dispute resolution (ODR) must be encouraged by Indian government for resolution of e-commerce disputes in India.

Now it has been reported that Amazon and 50 of its sellers are facing investigations for allegedly falsely claiming Central Value Added Tax (Cenvat) credit and evading tax of about Rs 118 crore. Aggregators such as Amazon pay service tax to the seller. Some sellers had not deposited the service tax with the government even after claiming it from the e-commerce giant. The Directorate General of Central Excise Intelligence (DGCEI) is investigating the matter. Traders are alleged to have misused the Cenvat scheme, which allows a manufacturer or service provider a relief from the taxes paid on inputs to manufacturing of final products or services. DGCEI had detected that bogus invoices of declared goods were issued to merchants through dummy firms. Verifications revealed that the firms said to be providing the goods were non-existent.

Officers of the DGCEI have conducted search operations at Amazon's business premises across the country and at its headquarters in Bengaluru, in January. "So far, the total tax evasion we have been able to establish is to the tune of Rs 118 crore, which could increase. We will soon issue show cause notices to respective sellers," a senior officer said. "We have recorded the statement of Amazon executives and are assessing the details provided by them," he added. Amazon India has confirmed that the DGCEI had raised some questions around their promotion programme. Amazon has cooperated with the authorities to the fullest extent and provided them with all the information that they needed. The DGCEI is also probing if Amazon had any involvement in the merchants claiming Cenvat credit.

10 May 2016

Legal And Regulatory Issues Of Cloud Computing In India

Cloud computing is a business model that relies upon shared computing resources in lieu of payment. Big technology companies can invest significant financial resources in cloud computing infrastructures that small and medium scale enterprises can use for a certain payment. The advantage for small and medium scale enterprises by using cloud computing model is that they need not to spend money upon building technology infrastructure. However, there are cyber security, data security, data protection, privacy and many more similar concerns that are resulting in lower adoption and use of cloud computing world over.

As far as India is concerned, use of cloud computing is still at nascent stage. There are many policy and law related issues that are responsible for slow growth and adoption of cloud computing in India. Absence of an effective cloud computing policy of India is responsible for its limited utilisation in India. However, legal issues of cloud computing in India are the main reason for cautious adoption of cloud computing by businesses and entrepreneurs. For instance, we have no dedicated regulatory framework for cloud computing in India. In fact, the chief information officers (CIOs) in India are not comfortable using cloud computing for their businesses.

Even the cloud computing due diligence in India is missing and companies and individuals are using the same in great disregard of the various laws of India. Cloud computing service providers in India are required to follow cyber law due diligence (pdf). The cyber law due diligence for Indian companies is now well established but cloud computing and e-commerce service providers are not taking it seriously. There is an urgent need to regulate e-commerce websites operating in India by Indian government.

We believe that India must not use software as a service (SaaS), cloud computing, m-governance, etc till proper legal frameworks and procedural safeguards are at place. This has also been accepted by the CIOs community and it is now for the Indian government to do the needful. Similarly, cloud computing security in India is also required to be strengthened. As on date, use of cloud computing in India is not a viable solution as we are ignoring legal and security concerns. Cloud computing in India must be techno legal in nature and till it meets the techno legal requirements, it should not be used in India.

Besides regulatory framework for cloud computing in India we must also ensure high availability levels, appropriate data erasing mechanisms, data privacy at the service provider’s level, export restrictions upon data, data handling monitoring mechanisms, jurisdictional issues, cloud computing security issues, licensing issues for cloud computing, etc.

Privacy violations, data breaches, data thefts, cyber crimes, etc would definitely arise in cases of use of cloud computing in India. Even if a company or individual offers cloud computing services in India, it/he has to comply with many legal provisions and cyber due diligence requirements. The information technology act 2000 (IT Act 2000) has prescribed due diligence requirements for various business organisations and stakeholders. These due diligence requirements equally apply to cloud computing service providers in India.

These due diligence requirements are very stringent and cloud computing providers can find themselves in legal hassles if they ignore the same. Managing sensitive and personal data and information in India is no more a causal approach but it has become very stringent. With the proposal to codify law of torts in India, more and more civil proceeding for violation of privacy rights may be initiated against the cloud computing service providers. It would be a wise option to establish best practices and cloud computing policy by all stakeholders in their own larger interests.

16 Apr 2016

Google Tax Liability In India Is Going To Increase In Future

Taxation issues require good amount to tax management to reduce the incidence of taxation. While tax management is permissible yet tax evasion is a punishable offense in most jurisdictions of the world. An Oxfam report has revealed that as many as top 50 US companies, including the likes of Apple, Walmart, General Electric, Microsoft, Google and Coca-Cola have a whopping $1.4 trillion stashed in offshore tax havens. Indian government is aware of these developments and it has decided to deepen alliance with US to combat tax evasion in both countries.

Tax liability of Google in not new to India. In the past as well, questions about tax liability of Google has been raised by many quarters. Even the European Union wants Google and Bing to be more transparent about advertising in web search results.

According to the recent Indian Budget announcement, any person or entity that makes a payment exceeding Rs 1 lakh in a financial year to a non-resident technology company will now need to withhold 6% tax on the gross amount being paid as an equalisation levy. For instance, if a person spends a sum of Rs. 2 lakh on online advertisement from Google in a single financial year, he has to withhold 6% tax on the gross amount being paid as an equalisation levy.

The said rule is applicable when the payment is made to companies that don't have a permanent establishment in India. This tax, however, is only applicable when the payment has been made to avail certain B2B services from these technology companies. Specified services include online and digital advertising or any other services for using the digital advertising space. This list, however, may be expanded soon.

Online advertising industry in India is going to flourish at a great speed in the coming years. Firstly, individuals or companies using online advertising platforms of India do not need to withhold 6% tax on the gross amount being paid as an equalisation levy for availing these services in India. Secondly, Google has recently scrapped the page rank criteria and this would provide a level playing field to all websites and blogs that provide qualitative contents but are not very good at page rank. Now online advertisers would rely more upon good placement in search engines and Alexa rank than upon platforms that were manipulated through inflated page rank through negative search engine optimisation (SEO).

Google's online advertisement revenue is going to be affected by these developments. Further, the tax liability of Google is also going to increase in India if it wishes to generate revenue from India or Indian transactions. Google would also be required to comply with e-commerce laws of India that are still in a development stage. There are also writings on the wall that foreign companies and e-commerce portals would be required to be registered in India. Google needs to adjust its policies for India for optimum results while maintaining its dominance in the cyberspace.

8 Dec 2015

Merger And Acquisitions (M&A) Policy And Guidelines 2014 For Telecom Sector Of India

The regulatory environment for telecom sector of India is fast changing to the betterment of various stakeholders. Foreign companies have been demanding a liberal telecom policy before they invest in India. Indian government started accepting these demands one by one.

The first assurance in this regard can be found in the form of the FDI policy for telecom sector of India 2014 (PDF). Indian government has liberalised and enhanced the FDI limit with FIPB approval. Similarly, Indian government has also given approval to establish two semiconductor wafer fabrication manufacturing facilities in India (PDF). This would benefit companies of Japan and Korea in expanding their bases in India. The electronic system design and manufacturing (ESDM) policy of India has also been streamlined by Indian government.

The guidelines for merger and acquisitions of telecom companies in India 2014 (PDF) have also been issued and many international telecom companies have shown their interest in this regard. The M&A policy for the telecom sector is likely to be presented before the cabinet for approval by 27 February 2014.

However, companies like Tata Tele and Aircel, which carry non-auctioned spectrum in their fold, may not be benefited much by this policy. All companies that are purely targeting spectrum acquisition would prefer to avoid the M&A route as it involves debt intake and risks, heavy costs and regulatory approvals. Rather they would opt for engaging in spectrum trading or sharing, policies for which are on the anvil. The M&A route would be generally preferred by those who wish to improve and enhance their subscriber base or infrastructure.

The new M&A guidelines prescribes that an acquirer will have to pay market price for spectrum of an acquired company in case of non-auction airwaves and came in with entry fee along with the licence. This has to be paid on a pro-rata basis for the remaining period of the licence. The guidelines are also liberal and pro active in the sense that they have removed the condition of a three-year lock-in period before any new spectrum can be sold. The guidelines also allow a higher 50% combined market share for the merged entity instead of the 35% proposed earlier, making it easier for bigger companies to engage in M&As.

Due Diligence In Telecom Mergers And Acquisitions (M&A) In India

With the announcement of merger and acquisition (M&A) guidelines for telecom sector of India 2014, negotiations and dealings in the telecom sector have significantly increased. While these negotiations and dealings are at the infancy stage yet they have indicated how things would take a shape in the near future.

As on date memorandum of understandings (MOUs) and letter of intents (LOIs) are being signed by various stakeholders. The next stage would be conducting of due diligence exercise for various fields like management, finance, legal, etc that are essential part of any business including telecom business.

The legal due diligence exercise may involve examination of the legal structure of business, contracts, potential regulatory issues and impact on the business, statutory clearances made till date, list of legal cases filed by and against the Company and the current status. Partner agreements, DOT license Agreements, VAS Services, liquidated damages, if any levied by licensor and list of all IPR Audits and IPR regulation issues could also be analysed during the legal due diligence exercise.

The primary regulators governing M&A activity in India are the Securities and Exchange Board of India (“SEBI”), the Reserve Bank of India (“RBI”) the Foreign Investment Promotion Board (“FIPB”) and the Competition Commission of India (“CCI”). The provisions of Indian Companies Act, 2013 (PDF), Income Tax of India, 1961, Foreign Exchange Management Act, 1999 (FEMA), The Competition Act, 2002, etc have to be duly complied with in this regard.  Further, telecom stakeholders exploring the M&A route must also comply with the Internet intermediaries requirements and cyber law due diligence requirements (PDF) as prescribed by the Information Technology Act, 2000 (IT Act 2000).

The Securities and Exchange Board of India (SEBI) has announced that it would release corporate governance rules for the listed entities in India. Further, the Parliament of India passed the Indian Companies Act, 2013 (PDF) to improve the corporate culture in India. Powers of Serious Fraud Investigation Office (SFIO) were also enhanced so that they can effectively deal with corporate frauds and crimes in India.

The Ministry of Corporate Affairs (MCA) has also issued some Rules under Chapter XIV of Indian Companies Act, 2013 pertaining to Inspection, Inquiry and Investigation by Indian Authorities and Serious Frauds Investigation Office (SFIO). The Suggestions Regarding Rules Pertaining to Inspection, Inquiry and Investigation (SFIO) by Perry4Law (PDF) has already been provided by us in this regard.

Taxation issues have been at the core of dispute between big telecom companies and Indian Government. For instance, companies having commercial presence in India were accused of violating the transfer pricing laws of India. Transfer pricing orders have already been issued against Vodafone and Shell India and Nokia has been accused of violating the income tax and transfer pricing laws of India.

There are provisions under the Income Tax Act for avoidance of tax by certain transactions in securities and avoidance of income-tax by transactions resulting in transfer of income to non residents. To further curb income tax avoidance and to check black money accumulation in foreign jurisdictions, Income Tax Overseas Units (ITOUs) of India in foreign countries would also be established.

With the advance in information technology, costs pertaining to sharing and storing of information, details and data of the merging company can be significantly reduced as all information can be stored in a secured online environment known as data rooms. The virtual legal due diligence in India has already taken a shape and many companies are using the same to ensure economy and a timely legal due diligence.

Perry4Law wishes all the best to all the stakeholders who are exploring M&A in telecom sector and contemplating engaging in electronic system design and manufacturing (ESDM) business in India.

Telecom Commission Approves Satellite Based Mobile Services In India

The Telecom Commission is an essential and core segment of Indian Department of Telecommunications (DoT). It has been playing a major role in bringing order to the chaotic telecom situation existing in India. The Commission along with the DoT manages the policy formulation, licensing, wireless spectrum management, administrative monitoring of PSUs, research and development and standardization/validation of equipment etc.

The Telecom Commission was constituted by the Government of India vide Notification dated 11th April, 1989 with administrative and financial powers of the Government of India to deal with various aspects of Telecommunications. The composition of the Commission consists of a Chairman, four full time members, who are ex-officio Secretary to the Government of India in the Department of Telecommunications and four part time members who are the Secretaries to the Government of India of the concerned Departments.

One of the areas covered by the Commission pertains to satellite based services management in India. The Satellite phones are permitted in India only with specific permission from DoT. Presently use of specific types of International Mobile Satellite Organisation (INMARSAT) terminals is only permitted as per details available under the link INMARSAT.

In a welcome move, the Telecom Commission has given the approval for introducing satellite based mobile services in India. The approval comes after a recommendation from the Telecom Regulatory Authority of India (TRAI) to introduce a regulatory mechanism to govern satellite phones. Initially, the services will be offered by Bharat Sanchar Nigam Ltd through a partnership with INMARSAT. INMARSAT provides its satellite services with a constellation of four satellites which are located in the Geo-stationary earth orbit.

Currently, in India, the satellite services of INMARSAT are used by maritime users through the Tata Communications Ltd under its international long-distance licence. Some limited numbers of users of land mobile have also been permitted by the DoT on a case-to-case basis.

Satellites provide telephone and broadcasting services, covering large geographical areas. A satellite-based communication system provides an ideal solution for connecting remote and inaccessible areas. In addition, satellite communication is widely used for the transmission of emergency traffic, such as distress and safety messages, to and from vessels at sea or remote locations.

While the INMARSAT services cater to maritime communication, the Government had envisaged satellite services, namely, Global Mobile Personal Communication by Satellite (GMPCS) in the new telecom policy 1999. Under this licence, satellite-based communication services were permitted. However, establishment of GMPCS Gateway in India by the licensee was a mandatory license condition, which dampened interest from potential investors. This required substantial financial expenditure which was not feasible to be recovered from the limited number of users.

Now the regulatory environment for telecom sector of India has changed and there is good sense in making such expenditure. The FDI Policy in telecom sector of India 2014 (PDF) is also conducive for investment purposes. Indian government has also given approval to establish two semiconductor wafer fabrication manufacturing facilities in India (PDF). This is in conformity with the policy of India government to encourage electronic system design and manufacturing in India. The new merger and acquisition (M&A) guidelines issued by Indian government is also seen as a pro active step by many telecom stakeholders. These developments would encourage establishment of GMPCS Gateway in India by the concerned licensee and widespread use of Satellite Based Mobile Services in India.

Until now, DoT was giving permission to procure the INMARSAT handsets and taking services from a foreign service provider was given to meet the requirement of paramilitary forces and disaster management. However, there are security related limitations in this arrangement.  There is a possibility of monitoring of calls outside the country as the earth station is located outside the country. In view of the above drawbacks, the Defence forces have not procured these handsets. They are continuing to use the old terminals. However, as declared by the INMARSAT, some of these old terminals will cease to be supported by their satellites from September. Thus, the decision by the Telecom Commission to permit BSNL to offer satellite services could help tide over the problems.