Technology
Where contracted margin went between signature and delivery, what the group charged itself along the way, and what the branch in Kochi exposes to two tax authorities at once.
Where contracted margin went between signature and delivery, what the group charged itself along the way, and what the branch in Kochi exposes to two tax authorities at once.
Arkan Technologies. The disclosure test is a dirham test: only arrangements struck in dirhams are counted towards it, and both legs count.
Arkan Technologies. The disclosure test is a dirham test: only arrangements struck in dirhams are counted towards it, and both legs count.
Contracted margin to realised margin
AEDEvery step between the two is something that happened: work signed but not yet delivered, the cost of the people who did it, and what another company in the group charged for its own.
Every step between the two is something that happened: work signed but not yet delivered, the cost of the people who did it, and what another company in the group charged for its own.
55 per cent of what was contracted is taken by work signed and not yet delivered
AED. Each step is a claim on the contract between signature and delivery.
The project register of Arkan Technologies, read from Zoho Books. Realised margin is recognised revenue less effort cost less the group’s own charge.
The steps are totals over the projects below. They open nothing, because a total whose workings showed one project would be a total of something other than what it says — each project in the table opens its own.
The steps are totals over the projects below. They open nothing, because a total whose workings showed one project would be a total of something other than what it says — each project in the table opens its own.
Projects
AEDEffort cost is not payroll alone. It carries the subcontractors and the third-party licences bought for the work, because both are direct cost of the delivery, and leaving either out would flatter the margin and understate what the work costs to do.
Effort cost is not payroll alone. It carries the subcontractors and the third-party licences bought for the work, because both are direct cost of the delivery, and leaving either out would flatter the margin and understate what the work costs to do.
| Project | Contract valueAED | RecognisedAED | Realised marginAED | Margin% | Complete% | Health |
|---|---|---|---|---|---|---|
| Core banking integration | 34.1 | 70.0 | on plan | |||
| Citizen portal phase 2 | (0.9) | 20.0 | milestone late | |||
| Point of sale rollout | 9.1 | 90.0 | scope creep | |||
| Data platform | 27.2 | 51.0 | on plan | |||
| Managed support | 21.7 | 50.0 | over serviced | |||
| Payments platform | 15.0 | 20.0 | on plan |
The project register of Arkan Technologies, read from Zoho Books. Margin and completion are proportions of each project’s own contract, so they are comparable across currencies where the money is not.
The project register of Arkan Technologies, read from Zoho Books. Margin and completion are proportions of each project’s own contract, so they are comparable across currencies where the money is not.
1 of the 1 projects past three quarters complete carry a margin under 10 per cent
Realised margin against how far through the work is. Bubble area is contract value.
The project register of Arkan Technologies, read from Zoho Books. Both axes are proportions of the project’s own contract.
The disclosure test
AEDA company is a party to an arrangement whether it billed or was billed, so the value that meets the threshold is what it sold and what it bought. Both readings are printed here with the one that counts, because either leg on its own answers a question nobody asked.
A company is a party to an arrangement whether it billed or was billed, so the value that meets the threshold is what it sold and what it bought. Both readings are printed here with the one that counts, because either leg on its own answers a question nobody asked.
| Direction | ValueAED | HeadroomAED | Against the threshold |
|---|---|---|---|
| Arkan Technologies sold | 26,590,300 | under | |
| Arkan Technologies bought | 11,174,838 | under | |
| Both legs — the correct test | 42,234,862 | (2,234,862) | over — disclosable |
Neither leg reaches the threshold on its own; together they pass it by 2,234,862
AED. The dashed rule is the 40,000,000 at which these arrangements have to be disclosed.
The related-party arrangements of Arkan Technologies. Arrangements struck in dirhams only. A dirham threshold cannot be met in a currency that is not dirhams.
Neither leg reaches the threshold of 40,000,000 on its own, and each of them read alone says the position is comfortable. Together they pass it by 2,234,862, so these arrangements are disclosable and the group needs a file that supports them.
Each leg above opens the arrangements it adds. The line beneath them opens nothing: the arrangements this company is a party to are not one filtered read but two, and a total whose workings listed only one leg would be the very mistake this table exists to show. It is the two figures above it, added.
Each leg above opens the arrangements it adds. The line beneath them opens nothing: the arrangements this company is a party to are not one filtered read but two, and a total whose workings listed only one leg would be the very mistake this table exists to show. It is the two figures above it, added.
The branch in Kochi
Assumed throughoutKochi is a branch, not a subsidiary. Nothing in the table above prices it, because there is no invoice between a company and a part of itself. What it creates instead is an Indian permanent establishment: one profit, divided between two countries by argument rather than by a bill, and claimed by two authorities who each want the division pointing the other way.
Kochi is a branch, not a subsidiary. Nothing in the table above prices it, because there is no invoice between a company and a part of itself. What it creates instead is an Indian permanent establishment: one profit, divided between two countries by argument rather than by a bill, and claimed by two authorities who each want the division pointing the other way.
Under the free zone regime, income attributable to a foreign permanent establishment is excluded from qualifying income — excluded, not exempt. It is also left out of the test that decides whether the free zone status survives, so the status is not what is at risk here. The profit is: it bears 9 per cent† in the UAE while India taxes the same profit, and the relief for that rests on a credit being allowed and on an attribution that has to be defensible to both authorities at once.
| Step | Branchper 100 | Subsidiaryper 100 |
|---|---|---|
| Indian corporate tax | 35.0† | 22.0† |
| Surcharge and cess | 2.1† | 3.2† |
| Withheld when the profit reaches Dubai | — | 7.5† |
| UAE corporate tax on the same profit | 9.0† | — |
| Credit for the Indian tax already paid | (9.0)† | — |
| Tax on 100 of profit | 37.1† | 32.7† |
The credit line is where the exposure sits. It assumes India’s charge is allowed against the Emirati one on the same profit, and that both authorities accept the same attribution. Where they do not — where India attributes more to Kochi than Dubai concedes — the overlap is taxed twice, and the branch route runs to 46.1† rather than 37.1†.
The subsidiary route costs about 4.4 less per 100, and it replaces an attribution argued after the year end with a transfer price that can be documented before it. What it costs is a second Indian company to file for and a real intercompany invoice to price — which is work the group already does on the arrangements above.
What the attribution rests on
The basis is cost plus a mark-up on the branch’s direct cost.† Direct cost is not payroll alone — it carries the subcontractors and the third-party licences bought for the work, and both belong in the base. Leave them out and the branch looks cheaper than it is, so too little profit is attributed to India. Put cost in that Kochi never bore and the Indian tax is overstated while the Dubai profit is understated. Either way the number is wrong in a direction somebody can see.
No benchmarking study supports the mark-up. That, and not the rate, is the exposure: a rate can be argued from the rules, and a mark-up nobody has benchmarked cannot be argued from anything. Two decisions would settle most of it — commission the study, and establish whether the Dubai company may elect to leave foreign branch profit out of its UAE return at all, which is what the 9 per cent line above is worth. Neither is a filing, and both can be started this quarter.
Every rate here carries a dagger. They are this application’s reading of the Indian and Emirati rules as they stand, not advice, and no adviser has confirmed them. The books hold no split between Dubai and Kochi, so no profit is attributed here — the comparison is per 100 of whatever the attribution turns out to be.
Every rate here carries a dagger. They are this application’s reading of the Indian and Emirati rules as they stand, not advice, and no adviser has confirmed them. The books hold no split between Dubai and Kochi, so no profit is attributed here — the comparison is per 100 of whatever the attribution turns out to be.