India reviews taxation on foreign BPO units

Saturday, 22 May 2004, 07:00 Hrs
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NEW DELHI: India is reviewing the taxation of multinationals doing business process outsourcing (BPO) activities in India, a top official said here Friday.

The finance ministry is developing a viable solution in accordance with the established principles of international taxation and pursuing double taxation avoidance pacts with major economic partners, Revenue Secretary Vineeta Rai said.

Inaugurating an international tax conference organised by The Associated Chambers of Commerce and Industry of India (ASSOCHAM), Rai said the directive issued in January sought to provide tax exemptions in certain situations.

"The government sought to grant exemption in respect of incomes earned from non-core activities," she said.

The directive was aimed at addressing apprehensions of foreign companies regarding their taxability in respect of non-core activities.

"The government understands that the complexities involved in this sector are much more intricate and it is the apprehension of the industry that the proposed circular is inadequate to deal with the problems of taxation arising in that area," Rai said.

"The concerns of this industry are being considered and a viable solution in accordance with the established principles of international taxation will no doubt emerge," she added.

The revenue secretary said MNC taxpayers should feel assured that if they pay legitimate share of taxes, the problem of sharing would be resolved by the tax-administrators of the two jurisdictions through the mechanism provided in the Double Taxation Avoidance Agreement.

To avoid any double taxation in the home country, the MNCs should insist on claiming exemption on the income taxed at source or claim credit for the tax so paid, in their home country, as is the international norm, she pointed out.

The government was therefore pursuing signing of double taxation avoidance agreements with economic partners so that commerce with these countries was not hampered on account of dual taxation, Rai said.

The negotiations on the double taxation avoidance agreement are at an advanced stage in respect of many countries, she said.

Source: IANS
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