The Central Board of Direct Taxes ( CBDT ) has today invited comments from the stakeholders for amending the Income Tax Rules, 1962 relating to Significant Economic Presence for determining Tax Liability of Foreign entities under Section 9(1)(i) of the Income Tax Act, 1961.
As per the allocation of taxing rules under Article 7 of Double Taxation Avoidance Agreements, business profit of an enterprise is taxable in the country in which the taxpayer is a resident. However, if an enterprise carries on its business in another country through a ‘Permanent Establishment’ situated therein, such other country may also tax the business profits attributable to the ‘Permanent Establishment’. For this purpose, ‘Permanent Establishment’ means a ‘fixed place of business’ through which the business of an enterprise is wholly or partly carried out provided that the business activities are not of preparatory or auxiliary in nature and such business activities are not carried out by a dependent agent.
The Finance Act, 2018 introduced the concept of ‘Significant Economic Presence’ (SEP) in the Income Tax Act, 1961 for taxation of nonresidents in India by amplifying the scope of the definition of “business connection” through Explanation 2A to section 9(1)(i) of the Act. The definition of ‘business connection’, was clarified to provide that a non-resident‘s significant economic presence in India shall constitute “business connection” of the non-resident in India.
The comments must be sent to the Board till 10th August 2018.
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