Foreign clients of Indian BPOs may get tax break

By SiliconIndia   |   Monday, 27 October 2003, 08:00 Hrs
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NEW DELHI: The finance ministry is about to exercise the specter of taxation that has been haunting the Indian BPO industry ever since this year's budget was presented. The ministry has been advised that the foreign clients of Indian BPO outfits could be fully exempt from tax, although some of their income could be deemed to arise from contracts executed in India, provided these companies adhere to transfer pricing norms.

Simply put, the income-tax exemption would hinge on compliance with the arm's-length-price principle enunciated in the transfer pricing legislation.

Transfer pricing is generally described as the price charged by an MNC to an associated enterprise for an international transaction relating to supply of goods and services. The regulation broadly says that any income arising from an international transaction with associated enterprises should be calculated having regard to the arm's-length price as the idea is to prevent shifting out of profits by manipulating prices charged or paid on a transaction.

Currently, income of call centres are not liable to tax. However, following changes made in the income-tax legislation in this year's budget on the taxation of non-residents, the Central Board of Direct Taxes had mandated an expert group to examine whether a non-resident company which has outsourced business processes to a call centre in India is liable to tax. The issue is particularly relevant when call centres conclude contracts for their clients as dependent agents, that is an agency permanent establishment. (Source: Economic Times)

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