Latest Expert Exchange Queries

GST Demo Service software link:
Username: demouser Password: demopass
Get your inventory and invoicing software GST Ready from Binarysoft
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing | GST - Goods and Services Tax
Popular Search: ACCOUNTING STANDARD :: TDS :: empanelment :: due date for vat payment :: TAX RATES - GOODS TAXABLE @ 4% :: ACCOUNTING STANDARDS :: list of goods taxed at 4% :: VAT RATES :: ARTICLES ON INPUT TAX CREDIT IN VAT :: cpt :: form 3cd :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: VAT Audit :: articles on VAT and GST in India :: Central Excise rule to resale the machines to a new company
News Headlines »
 How to file income tax returns online without having Form 16 in 10 simple steps
 Deadline For Filing Income Tax Return (ITR) Is Just 11 Days Away: 10 Latest Details To Know
  10 incomes you need not pay any tax on
 How To File Income Tax Returns In Three Steps By March 31, 2018
 10 things about income tax every taxpayer should know
 What to do if your TDS is not deposited with the government
 What if you forget to verify your Income Tax return?
 TDS on rent and other tax tasks to complete before March 31
 5 income tax changes which will come into effect from April 1, 2018
 Why you shouldn't be a last-minute tax filer
 How to calculate income tax for this assessment year on Moneycontrol

Tax on BPO units: Get the right picture
July, 03rd 2006

Taxing BPO units in India has been a matter of controversy for quite some time. However, the legal position as clarified by CBDT vide its circular no.5/2004 dated 28.09.2004 is summarised here.

During the last decade or so, India has seen a steady growth in outsourcing of business processes by non-residents or foreign companies to IT-enabled entities in India.

Such entities are either branches or associated enterprises of the foreign enterprise or an independent Indian enterprise. Their activities range from mere procurement of orders for sale of goods or provision of services and answering sales related queries to the provision of services itself like software maintenance service, debt collection service, software development service, credit card / mobile phone related service, etc.

The non-resident entity or foreign company will be liable to tax in India only if the IT-enabled BPO unit in India constitutes its permanent establishment (PE). The extent to which the profits of the non-resident enterprise is to be attributed to the activities of such PE in India has been considered by the Board.

Paragraph 2 of Article 7 of tax treaties contain the central directive on which the allocation of the profits to a PE is intended to be based. The paragraph incorporates the view that the profits to be attributed to a PE are those which PE would have made if, instead of dealing with its head office, it had been dealing with an entirely separate enterprise under conditions and at prices prevailing in the ordinary market.

Hence, in determining the profits attributable to an IT-enabled BPO unit constituting a PE, it will be necessary to determine the price of the services rendered by the PE to the head office or by the head office to the PE on the basis of the arms length principle.

It is therefore clear that once the BPO unit constituting the PE is subjected to tax in India, the non-resident company will not be liable to pay any further tax in India. The above principle has also been approved by the Authority for Advance Rulings in a recent case of Morgan Stanley & Co., USA, 152 Taxman 1(AAR)

In this case Morgan Stanley & Co. is a non-resident in India and tax resident of USA. It is a leading investment bank having a number of group companies in various parts of the world. One of the group companies is Morgan Stanley Advantage Services Private Limited (MSAS), which is incorporated in India. MSAS renders support services such as IT support, account reconciliation, research etc.

In the question as to whether MSAS will constitute Morgans PE in India, AAR held that MSAS would be regarded as PE of the applicant in India because of its employees presence for more than 90 days in India.

Regarding the issue of taxable income in India, the question before the AAR was that as long as MSAS, being the PE of the applicant in India, is remunerated for its services at arms length by the applicant and as long as all its actual income is brought to tax, no further income can be attributed in the hands of the PE of the applicant.

The Authority held that as long as MSAS is remunerated for its services at arm's length price, there should be no additional profits attributable to the applicant or MSAS in India.

The above ruling will go a long way in allaying non-resident companies fears of paying tax beyond the profits made by their PE in India.

Home | About Us | Terms and Conditions | Contact Us
Copyright 2018 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
SEO Company Search Engine Optimization Company US SEO Local SEO Company Website SEO Company Alabama SEO Company Alaska SEO Company Arizona SEO Company Arkansas SEO Company California SEO Company Colorado SEO Company Connecticut SEO Company Delawa

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions