Taxation of IT-enabled Business Process Outsourcing Units in India

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..... between the two, the resident entity may not be a Permanent Establishment of the non-resident entity, and the resident entity would have to be assessed to income-tax as a separate entity. In such a case, the non-resident entity will not be liable under the Income-tax Act, 1961. 2. However, it is possible that the non-resident entity may have a business connection with the resident Indian entit .....

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..... bile telephone related service, etc. The non-resident entity or the foreign company will be liable to tax in India only if the IT-enabled BPO unit in India constitutes its Permanent Establishment. The extent to which the profits of the non-resident enterprise is to be attributed to the activities of such Permanent Establishment in India has been under consideration of the Board. 4. A non-resid .....

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..... 7 of Double Taxation Avoidance Agreements provides that if a foreign enterprise carries on business in another country through a Permanent Establishment situated therein, the profits of the enterprise may be taxed in the other country but only so much of them as is attributable to the Permanent Establishment. Paragraph 2 of the same Article provides that subject to the provisions of Paragraph 3, t .....

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..... h the accepted principles of accountancy and the provisions of the Income-tax Act, 1961. 6. Paragraph 2 contains the central directive on which the allocation of profits to a Permanent Establishment is intended to be based. The paragraph incorporates the view that the profits to be attributed to a Permanent Establishment are those which that Permanent Establishment would have made if, instead .....

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..... h price would have the same meaning as in the definition in section 92F(iii) of the Income-tax Act. The arms length price would have to be determined in accordance with the provisions of sections 92 to 92F of the Act. 8. The CBDT Circular No. 1/2004, dated 2nd January, 2004 is hereby withdrawn with immediate effect. - Circular - Trade Notice - Public Notice - Instructions - Office orders Ta .....

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