Copying and distributing are prohibited without permission of the publisher

India: India moves to revamp its direct tax law; India’s reservations on OECD Model Commentary on permanent establishments

30 January 2018

Email a friend
  • Please enter a maximum of 5 recipients. Use ; to separate more than one email address.


India moves to revamp its direct tax law

The introduction of the goods and services tax last year has led to a consolidation of the indirect tax regime in India. The government is now moving to overhaul the direct tax regime. To this end, it has set up a task force to review the existing Income-tax Act, 1961 and to draft a new direct tax law for the country.

This is not the first time that a complete overhaul of India's direct tax laws has been attempted. In 2009, a draft Direct Taxes Code Bill was released for public comments, after which it was introduced in Parliament in 2010. However, this Bill lapsed with the dissolution of the lower house of Parliament before the 2014 elections. Several features of the lapsed Direct Taxes Code Bill were, however, incorporated into the existing Act, including the General Anti-Avoidance Rule (GAAR), which came into force in April 2017.

The existing task force comprises revenue officials as well as lawyers, accountants and economists. The terms of reference of the task force specifically require it to consider international best practices and systems adopted in various other countries. The task force is expected to submit its report to the government by May 2018.

India's reservations on OECD Model Commentary on permanent establishments

In 2017, the OECD released an update (2017 update) to the Model Tax Convention and Commentary. In line with its longstanding position on expanding source-based taxing rights, India has put forward several important reservations on the permanent establishment (PE) issue, which form part of this update.

On websites constituting a PE

The OECD Commentary notes that a website by itself cannot constitute a PE, although the location of a server hosting a website could constitute a fixed place PE of an enterprise that operates the server. India, however, disagreed with this interpretation and noted that a website could constitute a PE in certain circumstances where it leads to the substantial economic presence of an enterprise. This approach broadly follows the option set out in the final report on Action 1 of the BEPS project.

On agency PE

Under the 2017 update, the scope of a dependent agent PE has been widened to include a person who habitually plays a principal role in the conclusion of contracts that are routinely concluded (without any material modifications) by the non-resident enterprise. India has made a reservation to exclude the term 'routinely' from this statement.

India has also stated that distribution of goods by an associated or a closely connected enterprise in cases where risks are not borne by such enterprise (e.g. in cases of low risk distributors) may give rise to a PE of the enterprise whose goods are sold.

India has also stated that an agent who is acting exclusively for an enterprise cannot be considered to be an independent agent.

Dharawat
Gangadharan
Rakesh
Dharawat
Hariharan
Gangadharan

Rakesh Dharawat (rakesh.dharawat@dhruvaadvisors.com) and Hariharan Gangadharan (hariharan.gangadharan@dhruvaadvisors.com)
Dhruva Advisors LLP
Tel: +91 22 6108 1000
Website: www.dhruvaadvisors.com






International Tax Review Profile

RT @Richard_Asquith: Avalara revolutionises the world of tax, helping the over 3,000 companies with automated EU VAT compliance @avalara @I…

May 21 2018 02:49 ·  reply ·  retweet ·  favourite
International Tax Review Profile

RT @gomezacebopombo: International Tax Review @IntlTaxReview has awarded us the European Tax Restructuring Deal of the Year for our advice…

May 21 2018 01:54 ·  reply ·  retweet ·  favourite
International Tax Review Profile

RT @DeloitteGreece: Deloitte Greece was recognised as Greece Tax Firm of the Year by @IntlTaxReview! Congratulations to all our tax profess…

May 21 2018 01:53 ·  reply ·  retweet ·  favourite
International Tax Review Profile

RT @bakermckenzie: We won six awards at last Friday's @IntlTaxReview Awards 2018, including Tax Firm of the Year in Luxembourg, UK and Neth…

May 21 2018 09:27 ·  reply ·  retweet ·  favourite
International Tax Review Profile

Following last night's #EuropeanTaxAwards, our next London event is our Leading Women in Tax Forum. Details here:… https://t.co/6BeuOVBqiV

May 18 2018 01:57 ·  reply ·  retweet ·  favourite
International Correspondents