Multinationals that import equipment or raw materials, or lease certain types of manufacturing goods, may have to pay additional taxes as government’s move to tax overseas companies’ income from digital transactions in the country has ended up covering offline transactions too.
The significant economic presence (SEP) provisions announced in May primarily intended to target digital MNCs and startups that operate in the country without a permanent establishment (PE). Some traditional companies that do not have a PE in India could also find themselves embroiled in the new tax framework, tax experts said. These firms may have to pay up to 42% of their income in taxes in the country, up from nil now.
The intention of SEP provisions was probably to only cover digital transactions within the tax net, experts said. However, the wordings of the regulation appear to trigger unintended consequences for MNCs and even some Indian entities, they said.
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