Siemens & Mitsubishi Improving their offer for Alstom

Siemens (OTCPK:SIEGY) and Mitsubishi (OTCPK:MHVYF) will now pay €8.2B ($11.2B) in cash, in place of their last bid of €7B. This will value Alstom (OTCPK:ALSMY) at €14.6B, which is well above GE's (GE) offer of €12.4B. Siemens has also expressed it is willing from the start to enter a mobility management joint venture with Alstom. Mitsubishi is also willing to purchase a 40% stake in the energy business, raising its cash payment €3.9B from €3.1B.

SEBI's step to revive primary market

The IPO market is on a death bed. Hardly any company is tapping the primary market to raise money. So, in order to revive the same SEBI has decided to introduce a slew of measures. These include having reservation and discount for retail investors in Offer for Sale (OFS) mechanism as well as hiking the minimum public shareholding for PSUs. Reservation for retail investors in OFS will increase their participation, while the increase in PSU float to 25% (from 10% currently) will attract investor interest.

While these measures are likely to give a new life to the dormant primary market, we feel that along with such steps, the market watchdog must also tighten its screws over issues ranging from price rigging to market manipulation.If SEBI tightens its screws on regulatory matters, the confidence of investors in the markets would increase. And this would lead to increased retail participation in equity markets.

Crude futures in Asia climbed higher

Crude futures in Asia climbed higher today, after data was revealed showing a 579k barrel decrease in U.S. weekly oil stockpiles, and a growing crisis in Iraq. Still, U.S. domestic crude production is currently its highest in 28 years. The Obama administration is also signaling that Iraqi Prime Minister should step down, stating he is unable to stabilize the region.

Euro Zone Bond yields returned to historic low

Euro zone bond yields returned to historic lows, after the Fed displayed a dovish outlook on its monetary policy yesterday. Earlier this week, longer-dated euro zone bonds sold off as higher-than-expected U.S. consumer price inflation put forward the possibility the Fed may raise rates. Italian and Spanish 10-year yields fell 7 basis points to 2.78% and 2.69% respectively. Yields on top-rated euro zone bonds were 3-4 bps lower.

Circumstances leading to formation of PE and estimation of profit attributable therto under Rule 10 explained. Even foreign assessees are liable for interest u/s 234B

Nortel Networks India International Inc vs. DDIT (ITAT Delhi)

 

Nortel Networks India Pvt. Ltd, an Indian company, entered into a contract with Reliance Infocom for supply, installation, testing, commissioning of hardware equipment. Immediately thereafter, the Indian company assigned the supply part of the contract to the assessee, a USA company, without any consideration. The Indian company retained the other obligations of the contract. The assessee purchased the equipment from a group company, Nortel Canada, and supplied them to Reliance Infocom. The assessee claimed that it had suffered a loss from the transaction. The AO took the view that the assessee did not have any manufacturing or trading infrastructure or financial or technological capability of its own and that it was only a paper company incorporated for the sole purpose of evading taxes in India. He accordingly held that the Indian company constituted a PE of the assessee and assessed its income under Rule 10 by recasting the global profits to arrive at the percentage of profit likely to have accrued from the Indian operations. He adopted the global gross profit margin percentage as 42.6% and allowed 5% of the turnover as deduction pertaining to other selling general and marketing expenses. The CIT(A) upheld the stand of the AO in principle but held that only 50% of such profits had to be considered to be attributable to the PE. On appeal by the assessee to the Tribunal HELD dismissing the appeal:

 

(i) The contract entered between the assessee and Reliance Infocom is a turnkey contract, indivisible contract for supply, installation, testing, commissioning etc. Nortel India has undertaken the responsibility for negotiating and securing the contracts. The contract for installation and commissioning was also undertaken by Nortel India. These arrangements show that assessee is getting its work executed through Nortel India. The assessee is merely a shadow company of Nortel Group and for all practical purposes, all the facilities and services available to the Nortel Group of Companies are equally available to the assessee. The hardware supplied through it is installed by Nortel India. The contracts were pre-negotiated by Nortel India. Thus, Nortel India is a fixed place of the business and dependent agent PE of the assessee. The Liaison Office of Nortel Canada is rendering all kinds of services to all the group companies including the assessee. The LO building pertaining to Nortel Canada constitutes fixed place PE of the assessee. The assesee’s contention that sales were completed overseas and installation was done under a separate contract is not acceptable. The compensation which has been represented as a sale consideration for the equipment represents the payment for works contract where entire installation and customisation has been carried out in India;

 

(ii) As regards the estimation of profits attributable to the Indian operations, the accounts of the assessee have no sanctity as they are not audited. The gross trading loss incurred from transaction within the group cannot be explained except for the reason that it has been designed as such to avoid taxation in India. The accounts of the Nortel Group would give a true and correct picture of the profit of the assessee. Though in other cases such as Nokia, Rolls Royce, ZTE Corporation & Huawei Technologies, the profit was limited to 20% to 35%, that is on the facts of those cases. In the present case, from the gross profit computed by reference to the rate applicable to the global accounts of the assessee, further substantial deduction has been allowed for selling general and marketing expenses and also R&D expenses. Thereafter, 50% of the resultant figure has been attributed to PE. This meets the ends of justice;

 

(iii) As regards the levy of interest u/s 234B, though the assessee is a non-resident whose income is subject to TDS u/s 195, the assessee had always been holding the position that receipts are not taxable in India and so it cannot be absolved from the liability to pay interest u/s 234B (Jacabs Civil Inc 330 ITR 578 (Del) distinguished; Alcatel Lucent (Del) followed)

 

The European Central Bank has expressed its concerns regarding foreign currency benchmarks, stating that relying on one set of data to compile a benchmark cannot guarantee its reliability. The ECB's concerns are related to an EU proposed law to regulate market benchmarks after banks were fined for fixing the Libor rate. Regulators are also now probing related accusations regarding the currency markets.

S&P lowered Argentina's long term Foreign Currency rating to CCC-

Argentina's long-term foreign currency rating of CCC+ has been lowered by Standard & Poor's to CCC-, due to an increased risk of default on the country's foreign currency debt. However, S&P affirmed the country's short-term foreign currency rating at C, saying that the court ruling was not likely to affect the government's service on local currency debt.