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Anti Avoidance Measures in International Taxation MCQ

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June 9, 2022

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65 mins read

Anti Avoidance Measures in International Taxation MCQ are covered in this Article. Anti Avoidance Measures MCQ Test contains 87 questions. Answers to MCQ on Anti Avoidance Measures International Taxation are available after clicking on the answer.

1. “Tax avoidance” is :-

a) An art of reducing or not paying any taxes by a person, without violating any tax law
b) illegal arrangements where taxpayer pays less tax than he is legally obligated to pay by hiding income from the tax authorities
c) Both
d) None of the above

Answer

Answer: a) An art of reducing or not paying any taxes by a person, without violating any tax law


 

2. Anti-Avoidance measures are –

a) Measures deployed by Government to check and control tax avoidance
b) Measures deployed by Government to simplify tax laws
c) Both A and B
d) None of the above

Answer

Answer: a) Measures deployed by Government to check and control tax avoidance


 

3. Different kinds of Anti-Avoidance measures include: –

a)    GAAR
b)    SAAR
c)    Both A and B
d)    None of the above

Answer

Answer: c)    Both A and B


 

4. In tax planning, a taxpayer –

a)    Arranges its business to minimize tax liability by using  Tax preferences specifically given under the law or arrangement that results in outcomes that the tax law did not intend to tax
b)    Pays less tax than he is legally obligated to pay by hiding income or information from the tax authorities
c)    Both A and B
d)    None of the above

Answer

Answer: a)    Arranges its business to minimize tax liability by using  Tax preferences specifically given under the law or arrangement that results in outcomes that the tax law did not intend to tax


 

5. In tax evasion, a taxpayer –

a)    Arranges its business in such a manner, that it minimizes tax liability. The arrangement makes use of Tax preferences specifically given under the law or results in outcomes that the tax law did not intend to tax
b)    Pays less tax than he is legally obligated to pay by hiding income or information from the tax authorities
c)    Both A and B
d)    None of the above

Answer

Answer: b)    Pays less tax than he is legally obligated to pay by hiding income or information from the tax authorities


 

6. Which of the following are tax-Avoidance Techniques :-

a)    Controlled Foreign Company
b)    Treaty Shopping
c)    Use of tax havens
d)    All of the above

Answer

Answer: d)    All of the above


 

7. Under the “business purpose rule”, taxpayer is required to :-

a)    Specify business purpose of a transaction
b)    Justify commercial reasons of entering a particular transaction
c)    Justify that such transactions are not limited for tax avoidance
d)    Both B and C

Answer

Answer: d)    Both B and C


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8. Under the “substance over form rule” :-

a)    Literal wording of legal provision prevails over economic, or social reality
b)    Economic, or social reality, should prevail over the literal wording of legal provisions
c)    Substance of transaction should not get precedence over the form presented in documents
d)    None of the above

Answer

Answer: b)    Economic, or social reality, should prevail over the literal wording of legal provisions


 

9. Faces of substance over form rule :-

a)    Legal v. Economic substance
b)    Sham transactions
c)    Wrong Characterization
d)    All of the above

Answer

Answer: d)    All of the above


 

10. In a sham transaction:-

a)    The ‘tax avoiders’ give effect to a transaction, which they do not carry out
b)    The ‘tax avoiders’ give effect to a transaction, which they do not intend to carry out
c)    Cover up another transaction
d)    All of the above

Answer

Answer: d)    All of the above


 

Anti Avoidance Measures in International Taxation MCQ

11. In step-transaction doctrine :-

a)    Taxpayers carry out single transaction in place of multiple transaction to avoid tax
b)    Taxpayers break a single transaction into distinct steps, which result in its acceptance for tax purpose and result in favorable taxation
c)    Taxpayers carry out sham transaction which results in favourable taxation
d)    None of the above

Answer

Answer: b)    Taxpayers break a single transaction into distinct steps, which result in its acceptance for tax purpose and result in favorable taxation


 

12. A  simulated transaction is a transaction where :-

a)    Taxpayers carry out single transaction in place of multiple transaction to avoid tax
b)    Taxpayers break a single transaction into distinct steps, which result in its acceptance for tax purpose and result in favorable taxation
c)    The parties agree on different terms, but subjectively intended to give effect to some other agreement
d)    None of the above

Answer

Answer: c)    The parties agree on different terms, but subjectively intended to give effect to some other agreement


 

13. In the  case of Mcdowell’s the Hon’ble supreme court laid the principal that :-

a)    Tax evasion may be legitimate
b)    Tax planning may be legitimate provided it is within the framework of law
c)    Provision of law should prevail over substance of transaction
d)    None of the above

Answer

Answer: b)    Tax planning may be legitimate provided it is within the framework of law


 

14. In Azadi Bachao Andolan’s case it was held that :-

a)    Use of colorable devices or dubious method to avoid tax would be permitted
b)    Tax planning may be legitimate provided it is within the framework of law|
c)    Provision of law should prevail over substance of transaction
d)    Use of colorable devices or dubious method to avoid tax was not permitted

Answer

Answer: d)    Use of colorable devices or dubious method to avoid tax was not permitted


 

15. In case of Vodafone International Holdings BV, dealing with indirect transfer of shares of an Indian Company the Apex Court held that :-

a)    Use of colorable devices or dubious method to avoid tax would be permitted
b)    Tax planning may be legitimate provided it is within the framework of law
c)    A taxpayer can arrange his affairs so as to reduce tax liability and the fact that the motive for a transaction is to avoid tax does not invalidate it, unless a particular enactment so provides
d)     Use of colorable devices or dubious method to avoid tax was not permitted

Answer

Answer: c)    A taxpayer can arrange his affairs so as to reduce tax liability and the fact that the motive for a transaction is to avoid tax does not invalidate it, unless a particular enactment so provides


 

16. Choose the Specific Anti-Avoidance Rule :-

a)    GAAR
b)    Controlled Foreign Corporation Rule
c)    Thin Capitalization Rule
d)    Both B and C

Answer

Answer: d)    Both B and C


 

17. General Anti-Avoidance Rules are introduced to :-

a)    To catch all schemes of tax evasion in general
b)    To avoid double taxation of same income
c)    to catch all schemes for tax avoidance in general
d)     None of the above

Answer

Answer: c)    to catch all schemes for tax avoidance in general


 

18. Transfer pricing provision is part of :-

a)    GAAR
b)    SAAR
c)    Both
d)    None of the above

Answer

Answer: b)    SAAR


 

19. In relation to GAAR, Section 95 empowers the tax authority to declare an arrangement as :-

a)    Sham transaction
b)    Impermissible arrangement
c)    Impermissible avoidable arrangement
d)    None of the above

Answer

Answer: c)    Impermissible avoidable arrangement


 

20. For applicability of GAAR, an arrangement is an impermissible avoidance arrangement u/s 96, if :-

a)    Its one of the purpose is to obtain tax benefit
b)    Main purpose of any step in arrangement is to obtain tax benefit
c)    Its main purpose is to obtain a tax benefit
d)    Both B and C

Answer

Answer: d)    Both B and C


 

Anti Avoidance Measures in International Taxation MCQ

21. For applicability of GAAR, an arrangement is an impermissible avoidance arrangement u/s 96, if :-

a)    Arrangement results directly or indirectly in the misuse or abuse of provision of the Act
b)    Arrangement lacks commercial substance
c)    Its main purpose is to obtain a tax benefit
d)    All of the above

Answer

Answer: d)    All of the above


 

22. Indian Company incorporates a subsidiary in a “no tax jurisdiction” with equity of US$ 100. Subsidiary has no reserves; it gives a loan of US$100 to Indian Company at the rate of 10% p.a. which is utilized for business purposes. Indian Company claims deduction of interest payable to subsidiary from the profit of business. This transaction :-

a)    Would be covered under GAAR
b)    Would be covered under SAAR
c)    Both A and B
d)    None of the above

Answer

Answer: a)    Would be covered under GAAR


 

23. Section 97 provides that an arrangement shall be deemed to lack commercial substance, if :-

a)    Substance of the arrangement as a whole, is inconsistent with, form of its individual steps or a part
b)    It involves or includes round trip financing
c)    Both A and B
d)    None of the above

Answer

Answer: c)    Both A and B


 

24. Section 97 provides that an arrangement shall be deemed to lack commercial substance, if :-

a)    Transaction is made without any commercial purpose
b)    It does not have a significant effect upon the business risks or net cash flows of any party to the arrangement apart from any effect attributable to the tax benefit that would be obtained
c)    Both A and B
d)    None of the above

Answer

Answer: c)    Both A and B


 

25. If an arrangement is declared as impermissible avoidance arrangement, then :-

a)    GAAR will override tax treaty provisions
b)    GAAR will not override tax treaty provisions
c)    Provisions of GAAR or tax treaty, whichever is more beneficial, will apply
d)    None of the above

Answer

Answer: a)    GAAR will override tax treaty provisions


 

26. If an arrangement is declared as impermissible avoidance arrangement, then tax authority will :-

a)    Treat Impermissible Avoidance Arrangement as if it had not been entered into or carried out
b)    Disregarding any accommodating party or treating any accommodating party and any other party as one and the same person
c)    Both A and B
d)    None of the above

Answer

Answer: c)    Both A and B


 

27. Provisions of GAAR will not apply to an arrangement where the tax benefit arising in aggregate to all concerned parties does not exceed :-

a)    Rs 3 crores
b)    Rs 1 crores
c)    Rs 10 crores
d)    Rs 30 crores

Answer

Answer: a)    Rs 3 crores


 

28. Investments made before …………………shall not attract GAAR

a)    April 1, 2019
b)    April 1, 2018
c)    April 1, 2017
d)    April 1, 2016

Answer

Answer: c)    April 1, 2017


 

29. In which of the following situations, provisions of GAAR will not apply :-

a)    Foreign Institutional Investor who invest in listed securities
b)    Income of any person from transfer of investments made before the 1st day of April, 2017
c)    Foreign Institutional Investor, who is an assesse under IT Act and does not takes benefit of Treaty; and Invests in securities with prior permission of the competent authority, under applicable SEBI regulations
d)    Both B and C

Answer

Answer: d)    Both B and C


 

30. Choose the case, where the provisions of GAAR will apply

a)    An Indian company sets up a unit in SEZ for manufacturing of chemicals and claims 100% deduction u/s 10AA
b)    An Indian company sets up a unit in a SEZ for manufacturing  chemicals and it claims 100% deduction of profits earned from that unit. It has a unit in Non SEZ area as well. It diverts its production from non-SEZ manufacturing unit and shows the same as manufactured in the tax exempt SEZ unit, while doing only process of packaging in the SEZ unit.
c)    A or B
d)    None of the above

Answer

Answer: b)    An Indian company sets up a unit in a SEZ for manufacturing  chemicals and it claims 100% deduction of profits earned from that unit. It has a unit in Non SEZ area as well. It diverts its production from non-SEZ manufacturing unit and shows the same as manufactured in the tax exempt SEZ unit, while doing only process of packaging in the SEZ unit.

Reason – In first case, assessee has claimed a legitimate deduction, which is not a case of tax avoidance. Thus, GAAR provisions cannot be invoked in this case.
In second case there is a case of misrepresentation of facts by showing production of non-SEZ unit as production of SEZ unit  and amounts to tax evasion and not tax avoidance. GAAR provisions will not be invoked in such a case


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Anti Avoidance Measures in International Taxation MCQ

31. Choose the correct statement from the following :-

a)    GAAR cannot be invoked if SAAR applies
b)    The provisions of GAAR and SAAR can coexist
c)    SAAR cannot be invoked if GAAR applies
d)    None of the above

Answer

Answer: b)    The provisions of GAAR and SAAR can coexist


 

32. Choose the correct statement from the following :-

a)    GAAR will be applied to deny benefit of tax treaty even in a case where there is compliance with Limitation of benefit test of the treaty
b)    GAAR will not be applied to deny benefit of tax treaty where there is compliance with Limitation of benefit test of the treaty if a case of avoidance is sufficiently addressed by such limitation of benefit test
c)    GAAR will not interplay with the right of the taxpayer to select or choose method of implementing a transaction
d)    Both B and C

Answer

Answer: d)    Both B and C


 

33. In which of the following situations provisions of GAAR cannot be invoked :-

a)    Where arrangement made by assessee is held as permissible by Authority for Advance Ruling
b)    If an arrangement is sanctioned by the Court, National Company Law Tribunal and the Court has explicitly and adequately considered the tax implication
c)    Where assessee has exploited option of treaty shopping to avoid taxes
d)    Both A and B

Answer

Answer: d)    Both A and B


 

34. Which of the following safeguards will ensure that GAAR will be invoked in rare cases to deal with highly aggressive and artificially pre-ordained schemes? :-

a)    Existence of grandfathering provisions in GAAR
b)    Applicability of GAAR only to arrangements where tax benefit exceeds Rs 3 crores
c)    GAAR will be vetted first by the Principal Commissioner / Commissioner and at the second stage by an Approving Panel, headed by judge of a High Court.
d)    None of the above

Answer

Answer: c)    GAAR will be vetted first by the Principal Commissioner / Commissioner and at the second stage by an Approving Panel, headed by judge of a High Court.


 

35. An arrangement lacks commercial substance if it exist for…………?

a)    5 years
b)    10 years
c)    2 years
d)    None of the above

Answer

Answer: d)    None of the above


 

36. In which of the following cases, GAAR is applicable?

a)    Where tax avoidance arrangement has been made between four parties and each party obtains a tax benefit of Rs 1 crore each
b)    Where tax avoidance arrangement has been made between four parties and each party obtains a tax benefit of Rs 50 lakhs each.
c)    Both A and B
d)    None of the above

Answer

Answer: a)    Where tax avoidance arrangement has been made between four parties and each party obtains a tax benefit of Rs 1 crore each


 

37. Choose the situation in which concept of treaty shopping would be applicable

a)    X Inc. (USA) wants to purchase shares of Indian company. For said purpose it created a company ‘X international’ in Country X.  Such company invest in shares of Indian company. Now X International claims exemption from capital gains on sale of such shares by taking benefit of DTAA between India and Country X.
b)    Mauritius Bank earns interest on buyer’s credit from Indian company and claims benefit of India-Mauritius treaty.
c)    Australian company earns income from royalty income from Indian company and claims benefit of India-Australia DTAA.
d)    All of the above

Answer

Answer: a)    X Inc. (USA) wants to purchase shares of Indian company. For said purpose it created a company ‘X international’ in Country X.  Such company invest in shares of Indian company. Now X International claims exemption from capital gains on sale of such shares by taking benefit of DTAA between India and Country X.


 

38. Choose the main categories of treaty shopping measures currently in use :-

a)    Introduction of Beneficial ownership concept in tax Treaties
b)    Introduction of limitation of benefit clause in tax treaties
c)    Specific measures that deny benefits to entities which are not subject to tax in their state of residence.
d)    All of the above

Answer

Answer: d)    All of the above


 

39. Concept of “beneficial owner” under tax treaties implies that………… :-

a)    Benefit of treaty shall be available to persons holding Tax Residency Certificate
b)    The concessional withholding tax benefit, under a Treaty, shall be available to the legal owner, only if he is the beneficial owner of the income, or the beneficial owner is a resident of the same
c)    Both A and B
d)    None of the above

Answer

Answer: b)    The concessional withholding tax benefit, under a Treaty, shall be available to the legal owner, only if he is the beneficial owner of the income, or the beneficial owner is a resident of the same


 

40. The beneficial owner of income is a person who ………… :-

a)    Has the right over the capital or other asset, and decide who should be allowed to use it
b)    Has right over income and its use
c)    Is the legal owner of income even if he has no right to use it.
d)    Both A and B

Answer

Answer: d)    Both A and B


 

Anti Avoidance Measures in International Taxation MCQ

41. What is Limitation of Benefit Clause?

a)    It is specific anti “treaty shopping” clause, which limits the Treaty benefits, to residents of either of the contracting states
b)    It limits the taxation rate
c)    Both A and B
d)    None of the above

Answer

Answer: a)    It is specific anti “treaty shopping” clause, which limits the Treaty benefits, to residents of either of the contracting states


 

42. Limitation of Benefit clause applies to

a)    Individuals
b)    Non-Individuals
c)    Both A and B
d)    Neither A nor B

Answer

Answer: b)    Non-Individuals


 

43. What is BEPS?

a)    It is specific anti “treaty shopping” clause, which limits the Treaty benefits, to residents of either of the contracting states
b)    It limits the taxation rate
c)    Interaction of laws of two countries (domestic or Treaty) may leave gaps/provide opportunities, whereby an income may not be taxed anywhere. BEPS strategies, take advantage of these gaps between tax systems of various countries to achieve double non-taxation or very low taxation.
d)    None of the above

Answer

Answer: c)    Interaction of laws of two countries (domestic or Treaty) may leave gaps/provide opportunities, whereby an income may not be taxed anywhere. BEPS strategies, take advantage of these gaps between tax systems of various countries to achieve double non-taxation or very low taxation.


 

44. Which of the following could be considered as disadvantages of BEPS : -?

a)    It increases Government Revenues and decreases cost to ensure compliance
b)    Higher tax imposed on other individuals in jurisdictions, when MNE’s do not pay their share of taxes
c)    It undermines voluntary compliance by all taxpayers who see multinational corporations legally avoiding income tax.
d)    Both B and C

Answer

Answer: d)    Both B and C


 

45. Which of the following could be considered as disadvantages of BEPS?

a)    It increases Government Revenues and decreases cost to ensure compliance
b)    It imposed higher tax on other individuals in jurisdictions, when MNE’s do not pay their share of taxes
c)    Both A and B
d)    None of the above

Answer

Answer: b)    It imposed higher tax on other individuals in jurisdictions, when MNE’s do not pay their share of taxes


 

46. Choose the BEPS implementation strategies

a)    Overall changes that are directly effective, like, work on the OECD Transfer Pricing Guidelines, Commentary to the OECD Model Tax Convention
b)    Changes that would be implemented by countries, through their domestic law, bilateral treaties, or a multilateral instrument.
c)    Both A and B
d)    None of the above

Answer

Answer: c)    Both A and B


 

47. What are the reasons due to which taxation issues arises in digital economy?

a)    A company can have a significant digital presence in another country’s economy but may still be not liable to tax there, in absence of any physical presence
b)    Problem in collection of VAT/GST with respect to the cross-border supply of digital goods and services.
c)    Both A and B
d)    None of the above

Answer

Answer: c)    Both A and B


 

48. BEPS Action Plan 1 is designed to identify ……………….

a)    Main difficulties posed by digital economy, in the application of existing international tax rules and outlines method and principles which would help tax physical and digital economy at par
b)    Difficulties posed by use of artificial avoidance of PE strategies by MNEs
c)    Difficulties posed by MNEs which reduced their taxes in source countries by changing debt levels of individual group entities
d)    None of the above

Answer

Answer: a)    Main difficulties posed by digital economy, in the application of existing international tax rules and outlines method and principles which would help tax physical and digital economy at par


 

49. In order to address the challenges of Digital Economy ……………………………. has been introduced in the context of specified online advertisement services

a)    New Chapter on Equalization Levy
b)    Provisions of Controlled Foreign Company Rules
c)    Thin Capitalization Rules
d)    None of the above

Answer

Answer: a)    New Chapter on Equalization Levy


 

50. What is hybrid mismatch arrangements?

a)    It exploits differences in the tax treatment of an entity or instrument under the laws of two or more tax jurisdictions to achieve double non-taxation
b)    In such arrangements, taxpayers avoid tax by exploiting treaty shopping
c)    Both A and B
d)    None of the above

Answer

Answer: a)    It exploits differences in the tax treatment of an entity or instrument under the laws of two or more tax jurisdictions to achieve double non-taxation


 

Anti Avoidance Measures in International Taxation MCQ

51. What are the techniques to achieve hybrid mismatch arrangements?

a)    Where a deduction related to the same contractual obligation is claimed for income tax purposes, in two different countries
b)    Arrangements that create deduction in one country, typically for interest expenses, but avoid a corresponding inclusion in the taxable income in another country
c)    Treaty shopping
d)    Both A and B

Answer

Answer: d)    Both A and B


 

52. Choose recommendation which will neutralize the tax effects of hybrid mismatch arrangements?

a)    Domestic Rules to deny deduction in the source country, to the extent, the amount is not taxable in counter party jurisdiction
b)    Changes to OECD Model Tax Convention to deal with dual resident entities, transparent entities including hybrid entities
c)    Both A and B
d)    None of the above

Answer

Answer: c)    Both A and B


 

53. When does hybrid mismatch arise due to Branch mismatches arrangements?

a)    Where a deduction related to the same contractual obligation is claimed for income tax purposes, in two different countries
b)    Arrangements that create deduction in one country, typically for interest expenses, but avoid a corresponding inclusion in the taxable income in another country
c)    Where jurisdictions take a different view for allocation of income or expenditure between, the branch and head office of the same taxpayer
d)    None of the above

Answer

Answer: c)    Where jurisdictions take a different view for allocation of income or expenditure between, the branch and head office of the same taxpayer


 

54. What is Controlled Foreign Company Regime?

a)    It is regime wherein a taxpayer claims a deduction related to the same contractual obligation for income tax purposes, in two different countries
b)    Arrangements that create deduction in one country, typically for interest expenses, but avoid a corresponding inclusion in the taxable income in another country in the source country
c)    Taxpayers who have controlling interest in a foreign subsidiary, can use intermediary companies  to reduce the tax base of their country of residence, by shifting their income into a CFC jurisdiction
d)    None of the above

Answer

Answer: c)    Taxpayers who have controlling interest in a foreign subsidiary, can use intermediary companies  to reduce the tax base of their country of residence, by shifting their income into a CFC jurisdiction


 

55. What is the BEPS related risk identified in BEPS Action Plan 4?

a)    Existence of PE is artificially avoided through the use of Commissionaire arrangements and through exceptions to the definition of the PE in tax Treaties
b)    Arrangements that create deduction in one country, typically for interest expenses, but avoid a corresponding inclusion in the taxable income in another country in the source country
c)    Use of related party and third-party debt to achieve excessive interest deductions
d)    None of the above

Answer

Answer: c)    Use of related party and third-party debt to achieve excessive interest deductions


 

56. What are the recommendations in BEPS Action Plan 4 to tackle BEPS related issue of excessive interest deduction?

a)    Introduction of group wide rules under which, the availability of interest deductions, within the group, is limited to the overall third-party interest expense, incurred by the group.
b)    Introduction of fixed ratio rules under which, the deduction for interest is limited to a percentage of its earnings before interest, taxes, depreciation and amortization (EBITDA)
c)    Both A and B
d)    None of the above

Answer

Answer: c)    Both A and B


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57. Which BEPS recommendation is accepted by India by way of amendment in the Income-Tax Act to tackle excessive interest deduction?

a)    Introduction of group wide rules whereby interest deductions, within the group, is limited to the overall third-party interest expense, incurred by the group.
b)    Introduction of fixed ratio rules under which, the deduction for interest and payments economically equivalent to interest is limited to 30% of EBITDA
c)    Both A and B
d)    None of the above

Answer

Answer: b)    Introduction of fixed ratio rules under which, the deduction for interest and payments economically equivalent to interest is limited to 30% of EBITDA


 

58. What is the combined approach under BEPS Action Plan 4 to restrict the interest deduction?

a)    The availability of interest deductions, within the group, is limited to the overall third-party interest expense, incurred by the group.
b)    The deduction for interest and payments economically equivalent to interest is limited to 30% of EBITDA and subject to profits of the company
c)    Fixed Ratio rule is supplemented with worldwide group ratio rule.
d)    None of the above

Answer

Answer: c)    Fixed Ratio rule is supplemented with worldwide group ratio rule.


 

59.        As per Section 94B of the Income-Tax Act restriction on deduction of interest to Associated Enterprise shall be ……………………

a)    40% of EBITDA
b)    10% of EBITDA
c)    30% of EBITDA
d)    None of the above

Answer

Answer: c)    30% of EBITDA


 

60. Section 94B of the Income-Tax Act provides restriction on interest expense paid by…………………………………………..to its Associated Enterprise

a)    Indian Company
b)    Foreign Company
c)    PE of foreign Company
d)    Both A and C

Answer

Answer: d)    Both A and C


 

Anti Avoidance Measures in International Taxation MCQ

61. What is ‘Patent Box’ regime?

a)    It provides for a preferential tax / lower tax rate on profits derived from intangible property
b)    It provides for a preferential tax / lower tax rate on profits derived by an entity in tax haven
c)    It is generally introduced by countries with an objective to foster innovation, and encourage development and location of intellectual property
d)    Both A and C

Answer

Answer: d)    Both A and C


 

62. How is ‘Patent Box’ regime is misused by companies?

a)    Taxpayers who have controlling interest in a foreign subsidiary, can use “Controlled Foreign Corporation” to reduce or defer the tax base of their country of residence, by shifting/retaining their income into a CFC jurisdiction
b)    It is misused by companies to shift profits from the location in which the value was actually created to another location where they may be taxed at a lower rate
c)    Both A and B
d)    None of the above

Answer

Answer: b)    It is misused by companies to shift profits from the location in which the value was actually created to another location where they may be taxed at a lower rate


 

63. Select BEPS recommendations under Action Plan 5 to control misuse of ‘Patent Box’ regime?

a)    It suggests restriction of deduction upto 30% of EBITDA
b)    It suggests allowing benefits from the Intellectual Property (IP) regime only to the extent the taxpayer contributes to the development of IP i.e. ratio of qualifying Research and Development (R&D) expenditures to total/overall R&D expenditure
c)    It suggests restriction of deduction on the basis of value of IPR
d)    None of the above

Answer

Answer: b)    It suggests allowing benefits from the Intellectual Property (IP) regime only to the extent the taxpayer contributes to the development of IP i.e. ratio of qualifying Research and Development (R&D) expenditures to total/overall R&D expenditure


 

64. Patent Box Regime was introduced in the Income-Tax Act by way of insertion of Section 115BBF.  It provides for concessional tax rate on income by way of royalty,  in respect of a patent developed and registered in India where atleast …………….of the expenditure should be incurred in India by the eligible assessee

a)    80%
b)    50%
c)    75%
d)    None of the above

Answer

Answer: c)    75%


 

65. Patent Box Regime provides for concessional tax rate @ …….on income by way of royalty,  in respect of a patent developed and registered in India for transaction covered under Section115BBF

a)    5%
b)    15%
c)    10%
d)    None of the above

Answer

Answer: c)    10%


 

66. Select BEPS concern which is covered under Action Plan 6 :-

a)    Excessive interest deduction by use of related party and third-party debt
b)    Treaty Shopping
c)    Both A and B
d)    None of the above

Answer

Answer: b)    Treaty Shopping


 

67. Select BEPS recommendations to counter treaty shopping under BEPS Action Plan 6 :-

a)    Introduction of Principle Purpose Test
b)    Introduction of Limitation of Benefit test under tax treaties
c)    Both A and B
d)    None of the above

Answer

Answer: c)    Both A and B


 

68. As per the recent changes in India-Mauritius treaty, capital gains arising to a resident of Mauritius from transfer of shares of an Indian company, which were acquired prior to 1.4.2017 are…………………… : –

a)    Taxable in India only
b)    Taxable in Mauritius only
c)    Taxable in both India and Mauritius
d)    Not taxable in either of the countries

Answer

Answer: b)    Taxable in Mauritius only


 

69. Under the recently modified India-Mauritius treaty, capital gains arising to a resident of Mauritius from transfer of shares of an Indian company, which were acquired between  1.4.2017  and 31.3.2019 are ……………: –

a)    Taxable  at full rate of tax
b)    Taxable at 50% of the tax rate
c)    Not taxable in either of the countries
d)    Both B and C

Answer

Answer: b)    Taxable at 50% of the tax rate


 

70. What is the purpose of introduction of Limitation of Benefit (‘LOB’) clause under tax treaties?

a)    In order to restrict tax rate on certain incomes
b)    In order to avoid treaty shopping
c)    In order to provide concessional tax rates to parties covered under LOB clause in tax treaties
d)    None of the above

Answer

Answer: b)    In order to avoid treaty shopping


 

Anti Avoidance Measures in International Taxation MCQ

71. UGG International (Mauritius) sold shares of Indian company on March 1, 2018. Such shares were acquired on Jan 1, 2015. What would be the tax rate on capital gains arising to UGG International assuming that it satisfy conditions of LOB clause?

a)    20%
b)    10%
c)    15%
d)    Nil

Answer

Answer: d)    Nil


 

72. UBG International (Mauritius) sold unlisted shares of Indian company on May 1, 2019. Such shares were acquired during April, 2017. What would be the tax rate on capital gains arising to UGG International assuming that it satisfies conditions of LOB clause?

a)    20%
b)    10%
c)    7.5%
d)    Nil

Answer

Answer: b)    10%


 

73. BGC International (Singapore) sold shares of Indian company on March 1, 2018. Such shares were acquired on Jan 1, 2015. What would be the tax rate on capital gains arising to BGC International assuming that it satisfies conditions of LOB clause?

a)    20%
b)    10%
c)    15%
d)    Nil

Answer

Answer: d)    Nil


 

74. BHN International (Singapore) sold unlisted shares of Indian company on May 1, 2019. Such shares were acquired during April, 2017. What would be the tax rate on capital gains arising to BHN International?

a)    20%
b)    10%
c)    7.5%
d)    Nil

Answer

Answer: b)    10%


 

75. What is the purpose or objective of BEPS Action Plan 8?

a)    It seeks to addresses transfer pricing issues relating to controlled transactions involving intangibles
b)    It aims to develop rules, which would avoid BEPS, that arise due to allocation/ transfer of risks and or capital, amongst group entities
c)    Develop special measure for transfer of ‘Easy to value Intangible’
d)    None of the above

Answer

Answer: a)    It seeks to addresses transfer pricing issues relating to controlled transactions involving intangibles


 

76. What is the purpose or objective of BEPS Action Plan 9?

a)    It seeks to addresses transfer pricing issues relating to controlled transactions involving intangibles by recommending allocation of profits associated with transfer and use of intangibles, should be in line with value creation
b)    It aims to develop rules, which would avoid BEPS, that arise due to allocation/ transfer of risks and or capital, amongst group entities
c)    It deals with developing rules to prevent BEPS for non-routine high risk transactions, which are generally not entered into between third parties.
d)    None of the above

Answer

Answer: b)    It aims to develop rules, which would avoid BEPS, that arise due to allocation/ transfer of risks and or capital, amongst group entities


 

77. What is the purpose or objective of BEPS Action Plan 10?

a)    It aims to develop rules, which would avoid BEPS, that arise due to allocation/ transfer of risks and or capital, amongst group entities
b)    It deals with developing rules to prevent BEPS for routine and high risk transactions, which are generally entered into between third parties
c)    It deals with developing rules to prevent BEPS for non-routine high risk transactions, which are generally not entered into between third parties.
d)    None of the above

Answer

Answer: c)    It deals with developing rules to prevent BEPS for non-routine high risk transactions, which are generally not entered into between third parties.


 

78. CBDT has notified new safe harbour regime , which has come into effect from 1st April, 2017, i.e., A.Y. 2017-18 and shall continue to remain in force for two immediately succeeding years thereafter, i.e. up to A.Y.2019-20. “Receipt of Low Value-Adding Intra-Group Services” has been introduced as a separate category in this report and the mark up of upto ……….. recommended by OECD has been adopted in safe harbour rules

a)    10%
b)    7.5%
c)    5%
d)    None of the above

Answer

Answer: c)    5%


 

79. What is the objective of BEPS Action Plan 12?

a)    It identifies strategies to place restriction on excessive interest deductions in high tax jurisdiction
b)    It identifies strategies to curb shifting of profit from high tax to low tax jurisdiction
c)    It calls for designing tools for mandatory disclosure rules for aggressive or abusive transactions or arrangements
d)    None of the above

Answer

Answer: c)    It calls for designing tools for mandatory disclosure rules for aggressive or abusive transactions or arrangements


 

80. Which of the following provision is inserted in the Income-tax Act as per BEPS Action Plan 12?

a)    Provision for secondary adjustment
b)    Provision of thin capitalization rules
c)    CbC reporting provisions
d)    None of the above

Answer

Answer: c)    CbC reporting provisions


 

Anti Avoidance Measures in International Taxation MCQ

81. Which of the following would be considered as an objective of BEPS Action Plan 14?

a)    Minimize the risks of uncertainty and unintended double taxation through  consistent implementation of tax Treaties and effective and timely resolution of disputes regarding their interpretation or application through MAP
b)    Minimize the risk of artificial avoidance of PE
c)    Minimize the risk of shifting of profits from high tax to low tax jurisdiction

Answer

Answer: a)    Minimize the risks of uncertainty and unintended double taxation through  consistent implementation of tax Treaties and effective and timely resolution of disputes regarding their interpretation or application through MAP


 

82. What is the use of multilateral instrument?

a)    It is an instrument to measure BEPS related risk
b)    It is created to control treaty abuse through treaty shopping
c)    Any changes to be made to multiple tax treaties simultaneously (as per BEPS Action Plans) could be made via multilateral instrument
d)    None of the above

Answer

Answer: c)    Any changes to be made to multiple tax treaties simultaneously (as per BEPS Action Plans) could be made via multilateral instrument


 

83. What is the Controlled Foreign Corporation?

a)    It is a foreign corporation which is controlled by a person (individual, company or together)
b)    It is a foreign corporation, incorporated in a low tax jurisdiction, which are controlled by a person (individual, company or together) who is a tax resident of a higher tax rate jurisdiction
c)    Any Foreign subsidiary company located in another jurisdiction
d)    None of the above

Answer

Answer: b)    It is a foreign corporation, incorporated in a low tax jurisdiction, which are controlled by a person (individual, company or together) who is a tax resident of a higher tax rate jurisdiction


 

84. How does CFC regulation prevents Base Erosion and Profit Shifting?

a)    It provides higher rate of tax on transactions with related parties
b)    It prevents BEPS by inserting provisions relating to thin capitalization
c)    It typically provides for taxation of certain income as income of resident shareholder, which are artificially transferred to an entity in another jurisdiction (CFC) in the year of its accrual, irrespective of whether it is distributed as dividend or not to the parent company.
d)    None of the above

Answer

Answer: c)    It typically provides for taxation of certain income as income of resident shareholder, which are artificially transferred to an entity in another jurisdiction (CFC) in the year of its accrual, irrespective of whether it is distributed as dividend or not to the parent company.


 

85. Why CFC rules are required?

a)    CFC regulations are needed to tax  foreign corporation which is used as a mere tool to defer taxes, and so that  the country of residence gets the right to tax such income
b)    CFC regulations are needed to promote foreign investments.
c)    CFC regulations are needed so as to restrict taxes in the country of residence
d)    None of the above

Answer

Answer: a)    CFC regulations are needed to tax  foreign corporation which is used as a mere tool to defer taxes, and so that  the country of residence gets the right to tax such income


 

86. Which of the following conditions need to be satisfied by foreign entity, for being classified as CFC?

a)    Person(s) in the State of residence individually or collectively exercise control over the CFC
b)    CFC should be engaged in active trade or business;
c)    Shares of the CFC entity are listed on recognized stock exchange of the country of residence
d)    All of the above

Answer

Answer: a)    Person(s) in the State of residence individually or collectively exercise control over the CFC


 

87. Which of the following conditions need to be satisfied by CFC in order to qualify as being engaged in active trade or business?

a)    It should actively participate in industrial, commercial or financial activities
b)    Its passive income like interest, dividend and royalties, and income from certain related party transactions should be less than 50% of the income for the year
c)    Its passive income like interest, dividend and royalties, and income from certain related party transactions should be more than 50% of the income for the year
d)    Both A and B

Answer

Answer: d)    Both A and B


 

Arinjay Jain

Bio of author

Arinjay is a Chartered Accountant with more than 20 years of post-qualification experience. He worked as Director, in the M&A Tax Division at KPMG in India. Presently, he is advising several MNCs in UAE on Economic Substance Regulations and impact of the UAE Corporate Tax Law on their business and clients across globe on International Tax issues . He is a well recognised Trainer of International Tax and UAE Corporate Tax. The areas of service include the following : - Advise and Compliance relating to International Tax Issues; Advise relating to UAE Corporate Tax Issues; Advise and Compliance relating to UAE Economic Substance Regulations; Advise and Compliance relating to Indian Income Tax Issues; Other connected matters from a Regulatory perspective.

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