The Editor,
BCA
Mumbai
Re: “Make in India” and “Ease of Doing Business in India” – Some Tax Irritants
Dear Sir,
The Prime Minister of India has launched “Make in India” campaign and has given strong indications to make India a friendly place to do business. India has continuously languished in the global ranking of “Ease of Doing Business”, and while foreign investors find India an attractive market, they find operational environmental both chaotic and uncertain. The PM has, during his foreign trips, promised foreign investors that they can look forward to a more congenial, transparent and consistent operating environment.
Amongst the many painful points frequently outlined by MNCs and investors, are the tax rules pertaining to taxation of overseas employees who have been sent on deputation/secondment by an MNC from its Head Office or other major international office to India to establish and streamline Indian operations/projects, as the case may be.
Normally, these seconded employees work under the direct control and supervision of the Board of Directors of the Indian Subsidiary and continue to receive their remuneration with all social security benefits from the parent entity. Such costs and remuneration are reimbursed by the Indian subsidiary to the parent entity.
Generally, it is contended by the Taxpayer (Indian Company) that reimbursement of such remuneration and other related costs of the seconded employees cannot be treated as payment of Fees for Technical Services [FTS] or Fees for Included Services [FIS]. Therefore, the taxpayers contend that such payments are not liable for TDS in India. However, such reimbursement of salary and costs by the Indian subsidiary has been a matter of huge controversy as the Tax Department seeks to tax such payment, as ‘fee for technical services’ or ‘fee for included services’ and holds the Indian subsidiary liable for consequences of not deducting TDS.
In a large/overwhelming number of judicial decisions, it has been held that such payment constitutes “Reimbursement of Expenses” and not “ FTS/FIS” and that even if presence of such Seconded Employees constitutes a Service PE in India, there is no net taxable income in India. The Tax Department has strenuously contested this and raised huge demands on Indian subsidiaries. This increases the cost of doing business in India for the foreign enterprise and devotion of management time and resources for undertaking the unnecessary, time consuming, costly and repetitive litigation, right upto the Apex Court.
Even if the Department’s stand is plausible in Law, such an Interpretation ought to be avoided, particularly in view of Prime Minister’s Modi’s “Make in India” Campaign and his desire to improve India’s Global Ranking on ease of “Doing Business”. Viewed from another angle, what would be our reaction if our Indian Enterprises operating abroad are similarly double taxed in the Foreign Country on the Reimbursement of Costs and Remuneration of Key Personnel deputed from India, in addition to taxation of such remuneration in the hands of the concerned employees.
The Prime Minister, Finance Minister and the CBDT should take cognisance of this burning problem and bring it to rest once and for all.
This would send a positive message and present India as a liberal, pragmatic, positive and matured destination for investment, as much as any other developed country for that matter.
Regards,
Tarun Singhal
