On Thursday, the Income Tax (I-T) department proposed changes in the guidelines for taxation for multinational companies (MNCs) and digital companies that have permanent establishments in the country. As per the release, the taxation is said to be weighed as per factors like domestic sales, assets, employee strength, and user base.
The report, ‘Profit Attribution to Permanent Establishment (PE) in India’ prepared by the Central Board of Direct Taxes (CBDT) explains the need to focus on employee and sales while estimating the domestic tax liability of assets in India of MNCs.
For digital firms, the additional criterion that will be taken into consideration is the user base of the application built.
MNCs in India will be taxed as per domestic tax laws if they have a fixed place of business. The fixed place will be taken into account as Permanent Establishment.
The report also mentioned that if an MNC is incurring global losses or if the profit margin is less than 2 per cent, the company will be considered to have made a 2 per cent turnover in terms of Indian revenue. The MNC will have to pay taxes accordingly.
The CBDT has invited comments on the draft report for the proposed taxation system for MNCs with assets in India.
Source: Money Control