India’s Central Board of Direct Taxes has published a report for comments, due by May 18th.
The Committee has recommended a mixed or balanced approach (“fractional apportionment”) that allocates profits between the jurisdiction where sales take place and the jurisdiction where supply is undertaken. India’s position is that such approach is acceptable in other tax treaties. However, the risk of double taxation is present if this approach is not adopted by other countries. Additionally, the approach differs from the OECD approach, which then introduces more complexity for all multinationals with Indian operations.
India is known for its long appeals, and different approaches to its fisc. Accordingly this report should be reviewed, with a possibility to comment, prior to further actions. This report, and methodologies, will also be closely followed by other countries in this complex and subjective area of PE profit allocations.
EY’s Global Tax Alert provides additional details, for reference.