The company engaged in reselling business shall indulge in distribution of goods in India where the products are procured from foreign company, such transaction triggers TDS compliance when payment is made from India, any payment made from India to a country outside India shall have to undergo TDS and PE test, pursuant to which the changeability of income and rate of tax shall be determined.
The provisions of section 90 of the act extends the benefit to the recipient company to avail treaty benefit and allows the company to exercise the provision which is more beneficial (DTAA or the Act) to the company, subject to availability of required documents (Tax residency certificate).
The foreign company receiving proceeds of sales / business receipts may exercises the DTAA benefit under article 7. In that case, such business receipts cannot be brought to tax in India.
When the income tax officers fails to pull the applicability of TDS or the taxpayer proves the validity of opting DTAA and company being eligible to claim benefit under DTAA, the next target shall be on the profit attribution and raising PE issue.
There are various PEs under which the companies are asked to attribute their profits, dependent agent PE is one of them where the Indian entity works wholly on behalf of foreign company and operating in India, this shall attract dependent agent PE in India and accordingly facilitate profit attribution. For the company to be called as dependent agent PE as per Article 5 of the DTAA, they have to habitually secure contracts on behalf of foreign affiliate or maintain goods habitually or have the authority to execute contracts on behalf of foreign associate.
When the entity is not procuring contracts on behalf of the foreign associate or depending on foreign associate for its business in India and the Indian entity is an independent entity in terms of executing contracts and agreement with customers, it shall fall beyond the purview of dependent agent PE.
When the transaction between two associated enterprise were found to be at ALP, no further attribution is required to be made to the PE.[1]
[1] M/s NCR Global Solutions Limited Vs. Deputy Commisioner of Income Tax circle 2(2)(2) International tax New Delhi.
Sagar N
An accomplished LLB graduate and a tax practitioner with a strong foundation in direct tax and tax proceedings, also a finalist in both Chartered Accountancy (CA) and Company Secretary (CS) programs. He holds a Master of Commerce (MCom), which complements his legal expertise.
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