Indian startups have called for defining India’s criteria for Permanent Establishment under the new Foreign Trade Policy to ensure foreign companies with substantial presence pay taxes on Indian income in India.
Local Circles, an online forum, has sent a missive to Ministry of Commerce and Industry, Ministry of Finance and Corporate Affairs, and Central Board of Direct Taxes on behalf of the Indian startups.
Permanent establishment is a concept in taxation that determines which jurisdiction has the right to tax a company’s revenue. The global tech giants have structured investment arms through a maze of subsidiaries held outside India in jurisdictions such as Singapore, Mauritius and Ireland, which means they pay about 10% tax on revenues, according to the Indian companies.
“To address the above issue of Direct Tax Loss, the new Foreign Trade Policy must consider defining India’s criteria for Permanent Establishment. Based on consultations conducted on LocalCircles, it is proposed that if any foreign corporation has 1 Million citizens/users of India registered with them or has 100 paying customers (businesses or citizens) or annual revenues of over INR 10 crores from customers in India, then they must be recognized as a Permanent Establishment of a foreign company,” the letter read.
The development comes after reports surfaced in October 2019 that the government may soon frame new tax laws for digital multinationals (MNCs), in accordance with a global agreement on taxation, along with other members of the organisation for economic cooperation and development (OECD).
The move may lead to digital MNCs such as Facebook, Google, Uber and LinkedIn, with operations in the country, changing their ownership pattern to be compliant with the new tax laws. Digital MNCs may have to create new domestic companies along with changing the ownership pattern to adhere to new tax laws. It will also have an impact on the tax cost for these companies, Inc42 reported. =