The Hindu Business Line : BPO taxation: Nasscom happy with new draft

THE National Association of Software and Services Companies has welcomed the draft revised circular on taxation of IT-enabled business process outsourcing (BPO) units issued by the Central Board of Direct Taxes (CBDT), saying it was in line with Nasscom's stance of following an "arm's length principle for captive ITeS/BPO units in India."

The circular issued by CBDT on Monday deals with the taxation of the resident (Indian) entity, which has become a permanent establishment (PE) of the non-resident or foreign entity on account of a business connection between the two entities. It provides that the profits attributable to the Indian entity constituting the PE of the non-resident entity would be determined on the basis of "arm's length principle."

"It (the circular) reflects Nasscom's recommendation ... for taxation of captive ITeS/BPO units in India, and a clear policy that foreign companies off-shoring business processes to India would not be subject to income tax in India," the Nasscom said in a statement here on Tuesday.

Nasscom said it would soon submit its comments to the Ministry on the new circular.

"We understand that if the Indian entity is liable to be taxed at arm's length for the activities performed by it, no further income would be deemed to accrue or arise to the foreign entity , irrespective of the nature of activities (viz. incidental or core) performed in India," it said.

"Complete tax-exemption of non-residents outsourcing to India should be encouraged, as it will stimulate growth of the BPO industry and benefit the Indian economy. These benefits include employment potential at low per capita cost," it said.

Dubbing the withdrawal of the earlier circular as a "correct step", Mr Raman Roy, Chairman and Managing Director of Wipro Spectramind, said the new draft revised circular on BPO taxation reiterated the position already embedded in the Income-Tax Act.

"The concept of transfer pricing is embedded in the law, hence there is no change in position," he said.

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