India: Outsourcing services not PE under UK tax treaty

India: Outsourcing services not PE under UK tax treaty

The KPMG member firm in India has prepared reports describing the following developments (read more at the hyperlinks provided below).

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  • Foreign company engaged in outsourcing services has business connection under the Income-tax Act, but not a PE under the India-UK tax treaty: The Delhi Bench of the Income-tax Appellate Tribunal held that a taxpayer engaged in outsourcing services had a “business connection” in India under the Income-tax Act, but did not have a permanent establishment (PE) under the India-UK income tax treaty. Since there was no PE in India, the business income was not chargeable to tax in India, and even if there were a PE in India, no profit would be attributed because the PE was compensated at an arm's length price. The case is: Vertex Customer Management Ltd. Read a March 2016 report [PDF 325 KB]
  • Tax treatment of government subsidies relating to the manufacture or sale of taxpayer’s products: The Supreme Court of India held that government subsidies granted to a taxpayer for the transport, interest, insurance, and electric power were revenue receipts, reimbursed to the taxpayer for certain costs relating to its manufacture and sale of products. The Supreme Court found a direct nexus between profits and gains of the industrial undertaking and the reimbursement of such subsidies. Therefore, the subsidies were to be included in the profits eligible for a deduction claim under sections 80-IB and 80-IC of the Income-tax Act, 1961. The case is: Meghalaya Steels Ltd. Read a March 2016 report [PDF 324 KB]
  • Guidelines for application of the safe harbour provisions for offshore funds: The Central Board of Direct Taxes (CBDT) issued guidance concerning the “safe harbour provisions” of section 9A as added to the tax law by the Finance Act, 2015—that is, the safe harbour that provides an offshore fund will not be construed to have a business connection in India or be considered to be a person residing in India solely on account of an investment manager being situated in India. Read a March 2016 report [PDF 333 KB] 

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