Nasscom welcomes committee on offshore and on-site taxation of IT companies

One of India’s biggest associations of companies, the National Association of Software and Services Companies has welcome the government’s move to re-examine its recent moves on taxing India-based operations of foreign companies.

There had been signals from the Income Tax department that it will scrutinize the value ascribed by foreign companies to the work done by their Indian centers. If foreign companies ascribe a small value for the work done at their Indian unit, the tax paid by them in India also gets reduced. This had been causing worry at Indian tax authorities, with many saying foreign companies are not fully pricing the work done by their units in India.

There had also been issues around taxing the revenue from on-site services of Indian companies. Such services are rendered in foreign countries by personnel based there, and are often subject to taxes in the home country. As such, taxation of such income in India would force software companies to pay a double tax.

Nasscom said it welcomed the announcement by the Prime Minister of India to set up a committee to review taxation of the so-called development centers in India.

“Nasscom has been closely working with the ministry of finance, directore of international taxation and CBDT (Central Board of Direct Taxes) on specific issues related to offshore and onsite services, the association said.

The prime minister had recently set up another committee to bring clarity on the General Anti Avoidance Rules or GAAR rules brought in Pranab Mukherjee, India’s former finance minister.

Mukherjee also brought in a controversial provision to tax old deals that were not taxable under then-existing rules, by making retrospective changes to India’s tax rules. The provision was criticized by experts for undermining the confidence of foreign investors in India and possibly triggering off a withdrawal of investment in India and leading to a fall in the value of the rupee.