New Delhi, Dec. 21
THE National Association of Software and Services Companies (Nasscom) on Wednesday said that Income-Tax law should be amended to provide that "arm's length price" for outsourced work be determined only on the basis of activities performed by the IT-enabled BPO unit in India without attributing any profits to the non-resident outsourcing work to India.
It also warned that India could lose up to $1 billion in revenues and an opportunity for sizeable employment generation unless the BPO taxation issues are resolved.
Arms length price refers to the price at which two unrelated parties would agree to a transaction. This is most often an issue in the case of companies with international operations whose international subsidiaries trade with each other.
Fringe Benefit Tax: On the issue of Fringe Benefit Tax (FBT), Nasscom said the levy on a presumptive basis itself needed reconsideration. "The law should be suitably amended to keep sales and promotion expenses, meals-related expenses and medical insurance out of the ambit of FBT. In addition to the above, the ITES/BPO industry should be treated at par with the IT industry as the same is in harmony with the other provisions of the Income-Tax Act," Nasscom said in its pre-budget wish-list to the Government.
Elaborating on the proposal relating to taxation of non-residents outsourcing IT-enabled services to India, Nasscom said that in case of any shortfall in the "arm's length price'', the consequential adjustment towards the shortfall should be made only in the hands of the IT-enabled BPO unit in India, and the non-resident should not be liable to tax in India for such outsourced work and consequently should not be required to file any return of income in India.
It said that as far as the BPO industry in India is concerned, predominant employment and revenue generation was by captive units of overseas MNCs (nearly 65 per cent). "These MNCs, at the corporate level, definitely have concerns about possible interpretations that may make the "parent" liable to tax and/or require the parent company to file returns here and open its books to Indian tax authorities. These worries have, in some cases, delayed or put on "hold" the transfer of more work to India. Such apprehensions may cause the loss of opportunity of further growth in the existing or proposed centres in India," it said. These units might then migrate to other locations, considering that this was a service industry, Nasscom warned.
Foreign tax credits: On the issue of foreign tax credits, Nasscom said, "the domestic tax law should have a provision wherein foreign tax credit is allowed on the basis of aggregate foreign tax paid in all countries in a financial year instead of on a country-by-country basis."
Calling attention to the recent circular relating to maintenance or repair of software, it said, "The inferences drawn in the circular from the decision of the Supreme Court in the case of Tata Consultancy Services are not found in the said decision. The circular is also beyond the provisions relating to service tax. Hence the circular may be withdrawn."