Indian startups want the government to define permanent establishment (PE) and give them a level playing field with global tech giants, which enjoy a tax advantage
“Some of these foreign companies are also conducting tax arbitrage at the global level and not paying any taxes in totality,” they said in a letter addressed to the commerce and industry ministry, finance ministry, Central Board of Direct Taxes (CBDT), revenue secretary and others.
Permanent establishment is a concept in taxation that determines which jurisdiction has the right to tax a company’s revenue. The global tech giants have structured investment arms through a maze of subsidiaries held outside India in jurisdictions such as Singapore, Mauritius and Ireland, which means they pay about 10% tax on revenues, according to the Indian companies.
Many countries have been questioning the manner in which global firms such as Facebook and Google operate and pay taxes. Companies basing themselves in low-tax jurisdictions for tax avoidance is called base erosion and profit shifting (BEPS). The term Google tax informally refers to measures aimed at combating this and ensuring that companies pay what they owe in line with revenue generated locally.
The tech giants have been slapped with fines in some countries. India has also been looking to tax them and had floated a framework two years ago mandating this for companies with a significant economic presence (SEP) locally. This determined the jurisdiction in which such a company should pay taxes. Some experts say it doesn’t work.
It’s “of no consequence because the thresholds have not been prescribed and the Indian tax treaties do not recognise significant economic presence”,said Amit Maheshwari, a partner at Ashok Maheshwary & Associates.