CBDT invites stakeholder comments on report pertaining to Profit Attribution to Permanent Establishment(PE) in India

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The Central Board of Direct Taxes (CBDT) has invited stakeholders’ comments on a draft committee report on attribution of profits in case of a permanent establishment (PE).

Key Facts:

  • Public  will have to be furnished electronically within 30 days from the date of its publication on the department’s website  www.incometaxindia.gov.in
  • The draft report by the CBDT committee on profit attribution to PE deems 2 percent of revenue derived from India as profit attributable to Indian operations inspite of having losses on a global level.
  • This will impact several PE especially of infrastructure projects which have been into chronic losses lately.
  • The subjectivity of Rule 10 and the resultant litigation will go away once the recommendations find way into the Act/Rules.
  • On the profit attribution method, the report postulates that the profits derived from India need to be defined objectively, and that the same could be arrived at by multiplying the revenue derived from India with the global operational profit margin. A deeming global operational profit of 2 percent has also been acknowledged by the Committee.
  • For business models in which users contribute significantly to the profits of the enterprise, user base could be taken into account for the purpose of profit attribution as the fourth factor for apportionment, in addition to sales, manpower and assets.
  • Weightage in the range of 10-20 percent have been assigned to the user base.
  • The Committee has recommended that profits derived from Indian operations should be higher of – (a) amount arrived at by multiplying the revenue derived from India multiplied with global operational profit margin, and (b) Two percent of the revenue derived from India.

Sources: PIB

Consider the following statements with regards to Central Board of Direct Taxes

I. It is a Non-statutory authority functioning under the Central Board of Revenue Act, 1963.

II. It is India’s official Financial Action Task Force unit.

III. It functions as a Division of the Ministry of Finance dealing with matters relating to levy and collection of direct taxes.

IV. Recently, It has invited stakeholders’ comments on a draft committee report on attribution of profits in case of a permanent establishment (PE).

Which of the following statement’s is/are true?

A. II,III and IV

B. I, II and III

C. I, II and IV

D. All of these

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