New rules to tax MNCs on cards as OECD pact stalls

Rules will cut discretion, bring in objectivity; move follows US exiting global deal

- Gireesh Chandra Prasad

India will soon issue a new set of rules to determine how foreign companies' profits earned in India will be taxed, in an effort to reduce litigation and bring more objectivity and clarity to taxation, two persons familiar with the development said.

The timing of the rules, the broad principles of which were first outlined by the Central Board of Direct Taxes (CBDT) in a 2019 expert committee report, coincides with the withdrawal of the US from a global tax deal. The deal was brokered by the Organization for Economic Co-operation and Development (OECD) to curb aggressive tax avoidance mainly by tech giants and the race to lower taxes by countries to attract capital.

"The new rules for attributing profits to non-resident companies with business connection in India are ready and will be brought out soon," said one of the persons quoted above. These rules are framed under Section 9 of the Income Tax Act and will amend Income Tax Rule 10, the person said on the condition of anonymity.

Current rules allow a percentage of the sales in India, or a commensurate share of global profits going by India's share in global sales, or any other method to compute taxable profits in India, which is believed to entail discretion to a large extent.