India will provide relief to overseas companies with global income that may be subject to tax here because the presence of their key management personnel stuck in the country during the lockdown created a ‘permanent establishment’ or place of effective management in the country. The respite will be granted on a case-by-case basis.
The govt has exempted individuals by excluding their lockdown stay from residency calculation and it was widely expected that a similar concession would be given to companies.
“We can provide relief on a case-by-case basis,” an official with the Central Board of Direct Taxes said.
The presence of key decision makers and employees of a business establishment in a tax jurisdiction due to reasons beyond their control such as lockdowns and travel restrictions can lead to the creation of a permanent establishment and make the company liable to pay tax.
According to the Organisation for Economic Co-operation and Development’s guidelines, a temporary change in location of the CEO and other senior executives is an extraordinary and temporary situation due to the Covid-19 crisis and should not trigger a change in residency.
“It’s only logical that such physical presence and the work carried out like e-signing of contracts, business decisions on operations during such time should be ignored while evaluating the business presence/PE exposure. Interestingly, OECD has envisioned few such situations and provided some guidance on this subject,” said Vikas Vasal, national leader tax at Grant Thornton in India.
India and other countries imposed nationwide lockdowns including bans on international flights to contain the spread of the coronavirus. The inability of certain individuals to move out of the country could have had implications for their own taxation if they held key managerial positions.
The CBDT official said each case will be assessed separately as the situation may not have been the same for all. However, experts said there should be clear guidance for field officials so that the principle is uniformly applied without subjectivity.
“In these globally difficult and unprecedented times, it’s only fair that India also issues necessary relaxation to clarify that due to forced presence in India of senior management personnel due to lockdown will not by itself result in permanent establishment or place of effective management in India,” said Sanjay Sanghvi, a partner with Khaitan & Co.
Source : Financial Express