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Introduction:

With the emerging new businesses in the world, it is essential to have laws and regulations that can appropriately deal with the legal consequences involved in day-to-day business transactions. Business administration is crucial and requires proper handling to operate it well; hence, specific business laws need to be enforced. These laws serve the purpose of protecting consumers as well as businesses. It is crucial to acknowledge the effect of the law on the business and especially on commercial/ corporate transactions. Therefore, this article will provide detailed information on what we understand by the term International Corporate Transactions and their laws. 

Defining Commercial Transaction:

A commercial transaction is defined as the transaction between two or more parties which involves the selling or purchasing goods or services in exchange for money. Generally, there is consideration involved in the commercial transaction, but in some cases, it can be exchange or involvement of other kinds of remuneration. There are several kinds of commercial transactions, including those between two businesses, government entities and business or internal transactions. These transactions are the heart of any business regime. 

Commercial transactions can take place at a national level and an international level. Currently, cross-border transactions, i.e. transactions across the national boundaries, have started pacing up in the near past. 

International Commercial Transactions- Meaning:

International Commercial Transactions means any business deal or partnership between the parties from at least two different nations, i.e. beyond a specified nation's territorial limits. These transactions are not limited to but include sales, licenses, leases, investment transactions etc. The International Commercial Transaction directly includes matters of documentary credits, dispute settlement on cross border transactions, Transport laws etc. The parties to these transactions can be small, large Corporations, individuals or any two nations. 

There are different types of International transactions or what is also called Cross Border Transaction, which are:

1. Cross Border Financing: It is any financial arrangement that involves two countries or occurs across borders, and this includes arrangements such as loans, letters of credit, bank guarantees, depository receipts etc.

2. Purchasing and Selling of products or services: Any activity related to buying or selling products or services in the different industries such as infrastructure, permanent establishments, bridging sources between local sources and supplying it outside one’s jurisdiction etc.

3. Combined Research and Shared Services: In today’s scenario, the business entities are introducing joint research programmes for one industry and also emerging shared service centres which are providing service across borders in different locations, which makes the whole routine cost-effective as the work can be outsourced in a less expensive area.

General Advisory before entering Cross Border Transaction:

The list of things which must be considered before entering into cross border transaction are:

1. General Advisory

2. Taxation Direct or Indirect

3. Legal Compliances

4. International taxation and applicable foreign laws

5. Corporate tax planning

6. Accounting and financial analysis

7. Change in Law etc.

Indian Laws Governing International Commercial Transactions/ Cross Border Transaction:

India has a very liberal, attractive and friendly, welcoming approach towards foreign investors, for which a change in the traditional system was required. Hence, various reforms in the areas of investment, trade, financial sector etc., have been made very frequently and at an alarming speed. Therefore, investors now view India as an attractive destination with tremendous potential growth and a country with a substantial commercial advantage.

In India, the International Commercial Transaction or Cross Border Transactions are governed by two laws:

1. Foreign Exchange Management Act, 1999 & Reserve Bank of India (RBI) Guidelines;

2. Income Tax Act, 1961

The Foreign Exchange Management Act, 1999 (FEMA) deals with cross border investments, foreign exchange transactions and transactions between residents and non-residents. There are specific guidelines given out by FEMA for the transactions to occur, requiring necessary prior approval in certain circumstances. If a person violates these guidelines, there is a provision of penalty under the act. Also, without the permission of FEMA, a resident cannot make any payment to the non-resident, as illustrated in Section 3 of the FEMA Act, 1999.

Reserve Bank of India, i.e. RBI, has played an essential role in foreign dealings. Without general or special permission from RBI, trading in foreign exchange or foreign security cannot occur.  RBI has been conferred with the power of compounding all the cases of contravention under the FEMA Act except cases falling under Section 3(a) of the Act.

The Taxation system is governed in India through the Department of Revenue, Ministry of Finance. Taxes on Income in India are determined by the Income Tax Act, 1961, which is amended and notified by the Indian Government. India has also signed several agreements and treaties with other countries on “Double Taxation Avoidance '', which shall be determined by the Indian Income Tax Act, 1961, read with DTAA. Section 90(2) of the Income Tax Act, 1961, an assessee can choose from ACT or DTAA, whichever is more beneficial to him.

According to Section 5 of the Income Tax Act, 1961, the foreign companies engaged in business activities in India are liable to be taxed under the Act.

Reference:

1.https://taxguru.in/finance/international-transaction-cross-border-transactions.html

2.https://astrealegal.com/cross-border-transactions/

3.https://www.hklaw.com/en/services/practices/international-business-and-trade/international-and-cross-border-transactions

4.http://ilawfirm.org/international-commercial-transactions-international-business-transactions-2/

5.https://www.stimmel-law.com/en/articles/international-commercial-transactions-standard-terms-and-conditions

6. https://www.bcasonline.org/referencer2015-16/other%20laws/fema.htm

Keywords:

Corporate transaction, international Commercial Transaction, cross border transaction, natopnal boundaries, Taxation,Legal Compliances, International taxation, Applicable foreign laws, Corporate Tax planning, Accounting, Financial analysis, Change in Law, Foreign Exchange Management Act, 1999,  Reserve Bank of India (RBI) Guidelines and Income Tax Act, 1961