India Tax Overhaul and Cryptocurrency

1 month ago

It seems as part of the tax overhaul, the Modi government is looking in to taxing bitcoin and other cryptocurrency. Some time ago the Indian government announced the creation of an interdisciplinary committee to prepare a report and recommend policies for cryptocurrency. 

The impact of the GST on cryptocurrency remains to be seen. The main question will be whether it is deemed a currency -- which would mean indirect taxes don't apply -- or essentially assets being used for bartering. 

The attraction of the latter option appears to be the relative simplicity. Rather than integrating and regulating bitcoin, it would merely be taxed under the new goods and services tax schema. Cryptocurrencies would be traded like gold, on registered exchanges monitored for illegal activity. The line that is being walked appears to be between blanket legalization with the preservation of the anonymity of distributed ledger cryptocurrencies and blanket illegalization, an unpopular option. 

The list of countries in which cryptocurrencies are illegal is not a long one: Bangladesh, Kyrgyzstan, Ecuador, Bolivia, and a few others. If India opted to illegalize cryptocurrencies, it would be the largest market to do so. 

Andrew Leahey

The Benefits Of The New Indian Goods And Services Tax (GST) For Startups

1 month 1 week ago

As previously discussed, the Modi government of India is overhauling the country's tax code -- replacing taxes levied on businesses by the central government as well as the individual states with one unified GST.

The GST is a massive tax reform, indeed likely the largest since India gained independent in 1947. India is comprised of 29 states and 7 union territories. Previous to the GST, each state and union territory had an independent tax schema that any would-be national startup would have to contend with. So, placing yourself in the shoes of a national Indian startup, you would need to consider how to pay:

  • Union Government Sales Tax
  • State Government Sales Tax
  • Service Tax
  • Value Added Tax
  • Custom duty & Octroi
  • Excise Duty
  • Anti Dumping Duty
  • Professional Tax
  • Municipal Tax
  • Entertainment Tax
  • Stamp Duty, Transfer Tax
  • Education Cess Surcharge
  • Gift Tax
  • Wealth Tax
  • Toll Tax
  • Swachh Bharat Cess (Service tax)
  • Krishi Kalyan Cess (Service tax)
  • Infrastructure Cess
  • Entry Tax

Under the GST, there is one consolidated tax for state and national governments, akin to that found in France, which would subsume most of the above. The GST will be payable at the point of consumption (point of sale, essentially) and, as previously mentioned, falls along a schedule with brackets ranging from 5% to 28%. 

The GST will assist startups in that it will permit entrepreneurs transacting with multiple states to calculate one tax rate for the State-GST and the Central-GST. The transaction costs for a startup in expanding from a single state to multiple, at least at the tax level, are thus substantially reduced. Additionally, unifying the tax system will permit India to explore new technologies, such as blockchain

Andrew Leahey

India Tax Overhaul

1 month 2 weeks ago

"Now, [the Modi government] is instituting the country’s biggest tax overhaul since independence. On Saturday, a nationwide sales tax replaces the current hodgepodge of business taxes that vary from state to state and are seen as an impediment to growth. It is expected to unify in a single market 1.3 billion people spread over 29 states and seven union territories in India’s $2 trillion economy."


The new tax system, the Goods & Services Tax (GST) is intended to simplify business taxes and spur growth, replacing taxes levied on businesses by the central government as well as the individual states. The GST will be divided in to Central Goods & Services Tax, State Goods & Services Tax and Integrated Goods & Services Tax. A constitutional amendment has already been passed by Parliament and approvals have been ascertained by India's 29 states. The current rate schedule includes 5, 12, 18 and 28% and a host of exceptions, subsuming dozens of brackets in to four. 

Ahead of the roll out, the Indian government developed a technology portal, the GST Network, which is intended to allow business owners to register their companies and pay their taxes online. While the system and the portal is not without its detractors, it does appear to have had at least some positive economic effect. Hyundai and Nissan have announced a decrease in automobile prices to pass on savings under the GST -- 5.9% and 3%, respectively. 

Update 2:43PM: There is a video session in which the Revenue Secretary, Ministry of Finance, Government of India answers questions regarding the GST roll out. 

Andrew Leahey

Delaware Senate Advances Distributed Ledger Bill

2 months ago

The Delaware Senate has voted Senate Bill 69 out of Committee, moving a step closer to permitting the use of networks of electronic databases ("distributed ledgers") for the creation and maintenance of corporate records.

We have previously discussed the concept of distributed ledgers. The Senate bill would permit corporations to authorize, issue, transfer and redeem shares through distributed ledgers. This would ensure that, in the eyes of the state of Delaware, corporations issuing shares through blockchain are not breaching their fiduciary duty by doing so. 

Andrew Leahey

Software as a Service - Crucial Contract Terms

3 months 1 week ago

As we have discussed previously, drafting software as a service ("SaaS") contracts brings with it numerous contractual complexities that in many ways mirror the complexity of the underlying technology. Providers give customers access to software and cloud services, allowing remote access and off-site data storage and shifting the risk of downtime and data corruption or loss to the provider. Of course, the amount of risk the provider wishes to assume in the arrangement is entirely up to the parties to the contract -- but both parties must take care to avoid assuming risk through ambiguous drafting and ensure what is in the contract truly reflects the bargain struck.

Just as lines of code cannot be cut and pasted reflexively from one project to another, so too is the case with contract language. Boilerplate should be used a heuristic - a quick way to see a list of provisions and clauses that you may want to consider negotiating for your current transaction. This post can be considered a boilerplate of the heuristic variety: some common SaaS provisions that you may want to consider. It is neither complete nor exhaustive and the entire list will likely be neither necessary nor sufficient for any individual transaction. They are provided merely as a list of provisions to get you thinking. 

Virtual Point of Demarcation

When goods are shipped internationally, parties to a sale agreement need to negotiate when title to the goods transfers from the seller to the purchaser. If Amazon sells you a box of crystal juggling pins and they are dropped on the warehouse floor, we have a pretty good understanding of who will bear the cost of replacement. Perhaps the answer remains clear if the pins are lost in transit. But what if Amazon sees them safely all the way to your doorstep where they are trampled and broken? Intuitively we have an understanding that the title and the risk of loss for those pins has now shifted to you - they were delivered safely to your door and were broken while in your possession. 

In the digital world, as is so often the case, the situation becomes murkier. Take for instance a voice over internet protocol ("VOIP") provider that sells a telephone service to a mid-sized business that has its own existing telephony infrastructure. If the VOIP service goes down on the provider's end, we understand that the outage is their responsibility. What if, however, an outage occurs and it becomes clear that it was owing to a misconfigured piece of equipment owned by the business? Without a virtual point of demarcation, the answer may need to be provided through litigation. 

Virtual points of demarcation make clear where a service provider's obligations end and the customer's begin. They are, conceptually, linked to the service level agreement -- they draw thick lines around the boundaries of the service level warranties. In essence, the service provider promises that X, Y and Z will not happen, but makes no additionally unenumerated assurances. 


Most businesses' needs are in flux. When a customer first signs a service agreement they can only do so based on their requirements (users, devices, licenses, etc.) at the time of signing. While it seems obvious, care should be taken to ensure that there is a transactionally cost effective way for a customer to expand or contract the number of users, devices or licenses that they are licensing. Placing undue transactional costs here, such as requiring them to renegotiate a new license, may cost the provider a customer when it comes time to expand - the cost effectiveness of staying with an existing provider is wiped out if new terms will need to be renegotiated as though they were a new customer. Make the path to expansion or contraction clear and as painless as possible. 


A number of years ago, cloud photo hosting service Flickr, now owned by Yahoo, ran in to some issues regarding the ownership of user photos uploaded to their service. Their Terms of Service, ambiguously worded, gave some users pause and caused them to wonder if Flickr was attempting to retain copyright ownership of all photos hosted on their service. Flickr responded, clarified their Terms of Service, reassured their users, and the furor died down. However, it really is impossible to say how much the debacle effected their growth, customer satisfaction, and even valuation. 

Providers: don't be like Flickr, make it clear from the start. For many modern businesses, their most valuable asset is their data. While service uptime and data security and privacy provisions may go over the heads of everyone save for the nerds in the basement in IT, the concept of who "owns" the data that is stored with your service will be crystal clear to techies and Luddites alike. Make clear who owns the data, who can use the data, if the data can be used or sold in the aggregate by the provider. If you were leasing warehouse space and the leasing agreement left who would own the items kept in the warehouse ambiguous, wouldn't you want to make sure it was cleared up before pen met paper? 

Indemnification and Insurance

Consideration should always be given on either side of a SaaS contract as to whether one or both parties should be compelled to carry insurance. Most obviously, a provider should carry insurance to cover data and privacy breaches, data loss, and service downtime. Less obviously, however, is the insurance carriage requirements of the customer. If the customer will be indemnifying the provider for any liability, the provider will want to ensure the customer carries sufficient insurance to cover the cost of liability. 

Downtime Allotments for Updates and Maintenance

99.9%, 99.999%, the minimum acceptable level of uptime is getting more 9s after the period every year. Owing to virtual servers and data redundancy, the need for downtime for updates or maintenance is becoming less and less common. However, there remain some technologies that still may require data or services to be unavailable for a period of time - and there is always the dreaded DNS issue. If required downtime may be a factor that needs to be considered by a provider in a SaaS agreement, care should be taken to also consider whether that downtime needs to be provided for separate and apart from the service level provision. In other words, a provider may want to guarantee 99.999% uptime as pertains to nonscheduled maintenance outages, but provide for a certain amount of downtime for upgrades an maintenance. 

Closing Thoughts

A solid understanding of the underlying technology, if not a technical mastery, is really a prerequisite for properly negotiating a SaaS agreement. As is the case with any contract, the drafter needs to be able to imagine all the potential scenarios that might present in the course of performance and account for them. If you were drafting a service agreement for the provision of transportation services for nuclear waste, you would engage experts to help ensure you were considering all of the potential risks - you wouldn't rely on your own reckoning just because you have seen Atomic Train. The same should be true for SaaS contracts: engage technical personnel and be realistic about your own understanding of the technology. Posting a meme on Facebook may not be sufficient technical savvy to negotiate the terms alone!

Andrew Leahey
30 minutes 9 seconds ago
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