New income tax ruling to hit BPO firms hard (India)

[OhioChick]

<26 Apr, 2007 l 0239 hrs ISTlTIMES NEWS NETWORK>

MUMBAI: In an unprecedented judgment that could have far reaching ramifications, the Income Tax Appellate Tribunal (ITAT) has ruled that foreign companies having local agents with Permanent Establishment (PE) will have to pay taxes in India.

The concept of PE is one of the most complex issues that international tax treaty laws have to deal with. That is because a foreign company's profits are taxable in a country only if the enterprise is deemed to be a PE, usually defined as a 'fixed place of business' through which business is carried out.

With this order though, income earned by foreign companies in India will come under the tax net even if the foreign company has paid the Indian agent on the basis of the Arm's Length principle (ALP). Under the terms of this principle, the prices paid to a foreign companies agent would be the same as they would have been, had the parties to the transaction not been related to each other.

While the order will bring in at least Rs 200 crore in taxes from the entertainment industry, it is the BPO business that will now come under the scanner as IT officials train their guns on this sector. "None of the foreign companies in the BPO space that have Indian agents are filing returns in India. We are planning to sent notices to these companies under section 163 of the I-T Act to file returns in India on the basis of the recent ITAT order," sources said.

http://timesofindia.indiatimes.com/Business/India_Business/New_income_tax_ruling_to_hit_BPO_firms_hard/articleshow/1955354.cms

[Cobalt Violet]

1. I hope this means all the companies that outsourced to India are...

so screwn.

[Fresh_Start]

2. me too. In fact, I hope they are taxed on all income

not just income produced in India

[blueworld]

3. BFD

Unless the corporate tax rates in India are higher than I think they are...

They're paying Indian workers at a much lower rate, and then selling products & services back to the US at a continuous HIGH rate. The outsourcing savings are being divvied up between the execs & the shareholders.

We will all be digested worm food long before the globalized free market equalizes anything.

:+