Inclusion of consultancy services under Construction
PEs, foreign firms engaged in construction activities in the country, is likely
to impact the real estate sector, says a PwC report.
PE (Permanent Establishment) is a fixed place of
business which generally gives rise to income or value-added tax liability in a
particular jurisdiction.
As per the report, tax-related issues pertaining to
Construction PEs are on the rise in relation to attribution of profits from offshore
supply and splitting of consolidated contracts.
The report mentions that though offshore supply is not
taxable in India, revenue authorities may raise a question about whether
offshore and onshore (PE-related) contract values have been split correctly.
India’s tax treaties provide for the constitution of
a Construction PE if a foreign company undertakes activities in
relation to a building or construction site, installation, assembly and
connected supervisory activities, in India for a specified duration, it said.
In November 2015, the Organisation of Economic
Cooperation and Development (OECD) issued its Action Plans (APs) on Base
Erosion and Profit Shifting (BEPS).
In cognisance with one of the APs, the ‘Multilateral
Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and
Profit Shifting’ (MLI) was signed in Paris, France, on June7, 2017. India was
one of the signatories.
The report said that according to the provisional list
of India’s reservations, submitted on the MLI, it has agreed to implement the
suggestions of the MLI in relation to Construction PEs.
“Inclusion of consultancy services under Construction
PE and the PPT (Principal Purpose Test) is likely to affect the real estate,
construction and EPC sectors in India adversely.
“Foreign companies may need to revisit their
arrangements in order to ascertain the impact of these changes,” said the
report.
Credit : http://realtyplusmag.com/
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