India presented its Union Budget 2018-19 before Parliament on February 1, 2018.
The budget proposes to expand India's version of the "permanent establishment" definition in line with the OECD base and erosion profit shifting (BEPS) project, among other measures.
India's budget also proposes to extend the concessional corporate tax rate of 25% (reduced from 30%) to Indian companies with gross revenues of up to INR 2.5 billion (approximately CAD $50 million). This lower tax rate will apply to Indian companies owned by non-residents, but not to limited liability partnerships or to non-residents with a permanent establishment in India.
Expanded "permanent establishment" definition
The budget proposes to harmonize India's 'business connection' test (the Indian equivalent of a 'permanent establishment') with the expanded permanent establishment concept in Article 12 of the Multilateral Instrument (MLI). In particular, the scope of "dependent agent" has been expanded to include "persons who habitually play the principal role leading to conclusion of contracts by non-residents".
The budget also proposes a 'significant economic presence test' (SEP Test), under which non-residents may have a "business connection" (i.e., a permanent establishment) in India through data or software downloads, or soliciting business activities through digital means in India.
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Information is current to February 13, 2018. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500