Source: News on Air
Context:
In a move aimed at reducing tax disputes and simplifying compliance for foreign businesses, NITI Aayog has proposed an optional presumptive tax regime for permanent establishments (PEs) operating in India. The proposal, outlined in the Aayog’s Tax Policy Working Paper Series-1, seeks to enhance certainty, transparency, and uniformity in India’s tax administration system.
What is a Permanent Establishment (PE)?
A Permanent Establishment (PE) refers to a significant and fixed business presence of a foreign entity within India. Such entities are typically liable to pay corporate income tax on income attributable to their Indian operations.
Key Proposal: Optional Presumptive Tax Scheme
NITI Aayog has suggested introducing a simplified, optional tax mechanism where a foreign company can be taxed based on a pre-defined percentage of gross revenue rather than undergoing a full-scale audit and profit attribution process.
Main Features of the Proposal:
- Optional Scheme: Foreign companies may opt in for simplicity or opt out to file a regular return if their actual profits are lower.
- Sector-Specific Rates: Different deemed profit margins would apply across industries.
- Certainty & Compliance Ease: Companies opting in would be exempt from maintaining detailed books in India for covered activities.
- Safe Harbour Protection: Tax authorities would not litigate the existence of a PE for opted-in entities, offering legal certainty.
- Alignment with Global Norms: The scheme would align with OECD principles and avoid retrospective amendments.
Expected Benefits:
- Reduction in tax litigation and administrative burden,
- Boost in investor confidence and ease of doing business,
- Improved tax revenue certainty for the government,
- Alignment with Make in India and FDI promotion goals,
- Strengthened India’s global investment competitiveness.
