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Piercing of Corporate Veil in Taxation Matters (India and International Transactions) with Reference to Direct Tax Codes


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1 Hidayatullah National Law University, Raipur (C.G), India
     

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In the ultimate analysis, some human beings are the real beneficiaries of the corporate advantages, for while, by fiction of law, a corporation is a distinct entity yet in reality, it is an association of persons who are in fact the beneficiaries of the corporate property. Therefore, it may happen that the corporate personality of the company is used to commit frauds or improper or illegal acts like tax evasion. Thus, the concept of piercing or lifting the corporate veil holds significance. A corporate veil may be pierced either through statutory provisions or by judicial interpretation. Piercing the corporate veil in taxation matters is an outcome of judicial decisions. This Article firstly deals with the pros and cons of the concept of tax evasion and piercing the corporate veil. It pertains to situations in which piercing of corporate veil in taxation matters is considered valid and convincing. Then it goes on to emphasizing the notion, construction and legality of lifting the veil in India, United States and United Kingdom. It also stresses on the Direct Tax Codes and the scope of piercing the veil. It is analytical and descriptive in nature and doctrinal in approach.

Keywords

Corporate Veil, Direct Tax, Tax Evasion, Corporate Entity, Piercing
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  • [1895-99] All ER Rep 33 : 66 LJ Ch 35.

  • Ibid

  • http://www.legalserviceindia.com/articles/corporate.htm, accessed on 3rd September, 2011 at 10:17 A.M.

  • For instance, the Court of Appeal in Adams v. IndustriesPlc [[1990] 2 W.L.R. 786, HL.], refused to lift the veil as against the defendant company on the ground that the right to use a corporate structure can be denied only in case of illegality and not immorality.

  • See, PALMER, ‘Company Law’, 2223 (1992). See also, C.I.T, Madras v. Meenakshi Mills Ltd., (1967) 63 ITR 609 (SC).

  • See, WILLIAM W. PARK, ‘Fiscal Jurisdiction and Accrual Basis Taxation: Lifting the Corporate Veil to Tax Foreign Company Profits’, 78 COLUM. L. REV. 1609 (1978).

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  • See, Young v. David Payne & Co., Ltd [1904] 2 Ch. D. 608.

  • See, Barber-Greene Americans Inc. v. Commissioner of Internal Revenue, (1960) 35 TC 365.

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  • See, W. T. Ramsay v. Inland Revenue Commissioners [[1982] AC 300] was a significant departure from the Westminster principle. In the instant case, the House of Lords considered a tax avoidance scheme which consisted of a series or a combination of transactions each of which was individually genuine but all of which as a whole resulted in tax avoidance. The House laid the principle that the fiscal consequences of a preordained series of transactions, intended to operate as such, are generally to be ascertained by considering the result of the series as a whole. It is not to be ascertained by dissecting the scheme and considering each individual transaction separately.

  • See, CIT v. A. Raman & Co. [(1986) 67 ITR 11] the Supreme Court held that the avoidance of tax liability is not prohibited. Legislative injunction in taxation statutes may not, except on peril of penalty, be violated, but it may lawfully be circumvented.

  • See, Bank of Chettinad Ltd v. CIT, [ (1940) 8 ITR 522 PC]

  • (2003) 263 ITR 707 (SC).

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  • See, Hollylock v. Federal Commissioner of Taxation, (1971) HCA 43; (1971 125 CLR 647, at p 657).

  • See, ROBERT B. THOMSON, ‘Piercing the corporate veil: an empirical study’, 76 cornel L. Rev. 1036 (1991)

  • (1958) UKPCHCA 1; (1958) 98 CLR 1, at p 8.

  • See, AULT, HUGH J., ‘Corporate Intergration Tax Treaties and Dividsion and the International Tax Base: Principles & Practice’, (1992) 47 Tax Law Review 565.

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  • Furniss v Dawson, (1984) 55 TC 324.

  • (1984) 55 TC 324 at 331.

  • Jones v Lipman [1962] 1 WLR 832.

  • IRC v. Burmah Oil Co Ltd., (1981) 54 TC 200.

  • Ibid at p. 215.

  • MALCOLM GAMMIE, ‘Sham and reality: the taxation of composite transactions’, British Tax Review, 2006.

  • 293 U.S. 465 (1935).

  • Nelson v. Commissioner, 281 F.2d 1 (1960).

  • See, Discussion Paper on Direct Tax Code, August 2010, Chapter-II, A-9

  • “Control and management signifies contolling and directive power, the head and brain as it is sometimes called and also means de facto control and management”;, See, DR. GIRISH AHUJA AND DR. RAVI GUPTA, ‘Direct Taxes and Practices’, Bharat Law House Pvt. Ltd., New Delhi, p. 45 , 2011; Also see, CIT v. Nandlal Gandalal, (1960) 40 ITR 1 SC

  • See, ARNOLD BRIAN J., ‘Tax Treaties & Tax avoidance’, (2004) 58 BIFD 244.


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  • Piercing of Corporate Veil in Taxation Matters (India and International Transactions) with Reference to Direct Tax Codes

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Authors

Apoorva Neral
Hidayatullah National Law University, Raipur (C.G), India

Abstract


In the ultimate analysis, some human beings are the real beneficiaries of the corporate advantages, for while, by fiction of law, a corporation is a distinct entity yet in reality, it is an association of persons who are in fact the beneficiaries of the corporate property. Therefore, it may happen that the corporate personality of the company is used to commit frauds or improper or illegal acts like tax evasion. Thus, the concept of piercing or lifting the corporate veil holds significance. A corporate veil may be pierced either through statutory provisions or by judicial interpretation. Piercing the corporate veil in taxation matters is an outcome of judicial decisions. This Article firstly deals with the pros and cons of the concept of tax evasion and piercing the corporate veil. It pertains to situations in which piercing of corporate veil in taxation matters is considered valid and convincing. Then it goes on to emphasizing the notion, construction and legality of lifting the veil in India, United States and United Kingdom. It also stresses on the Direct Tax Codes and the scope of piercing the veil. It is analytical and descriptive in nature and doctrinal in approach.

Keywords


Corporate Veil, Direct Tax, Tax Evasion, Corporate Entity, Piercing

References