Written By Ruchi Sharma, Vijai Jayaram and Aditya Goyal:
Global functionality centres (GCCs) have had a outstanding progress story in India. While they have been initially established in India with the target of supporting their world places of work with again-workplace capabilities, in the present day they’re on the forefront of worldwide innovation, creating reducing-edge options in areas equivalent to cloud computing, machine studying, synthetic intelligence, blockchain, knowledge science, and so on.
As per a report by Nasscom, India at present has over 1,580 GCCs or captives, with over 16 lakh individuals working in these firms. By 2026-27, Nasscom predicts the quantity rise to 2,000-plus GCCs in India.
Tax has an affect on most industries and GCCs aren’t any exception. We have listed under high-5 rising areas that GCCs ought to tread with warning on:
Changes in capabilities/operational mannequin
While many GCCs begin operations enterprise a restricted set of capabilities, it’s seen that they shortly scale up, each by way of the variety of capabilities in addition to going up the worth chain. This may have an effect on their switch pricing preparations and margins, in addition to their taxable oblique tax service profile, which can warrant a re-look.
Further, with modifications within the operational mannequin equivalent to in relation to reporting matrix, distant working, and so on, there may very well be potential Permanent Establishment (PE) dangers for the GCCs’ abroad group firms in India, which will must be evaluated.
Secondment preparations
Potential PE and withholding tax dangers in relation to secondment preparations and associated funds have been nicely documented. Post a current Supreme Court ruling , within the context of service tax, whereby secondment preparations have been categorized as “manpower supply” providers, apart from the service tax/GST publicity, these dangers would must be re-assessed. Key components equivalent to the character of the work being performed in India by the expatriates, and related paperwork (equivalent to secondment agreements, project letters, and so on.) would wish consideration.
While tax treaty shelter could also be out there, this can be a truth-particular train, which might depend upon the phrases and situations of the secondment association and the supporting documentation.
Foreign funds
The Finance Act, 2023, has raised the withholding tax charge on overseas funds from 10% to twenty% (excluding surcharge and training cess). Accordingly, GCCs would wish to re-assess the withholding tax charge on frequent intra-group funds equivalent to in the direction of HQ expenses, price-allocations, license charges, and so on.
They would additionally have to assess tax return submitting necessities in India for the abroad recipients of such funds. There may be an equalization levy/digital tax interaction, particularly in circumstances the place taxes should not being withheld on overseas funds.
DESH Regulations
The authorities is bringing out a brand new laws, the Development of Enterprises and Service Hubs (DESH) Bill, 2022 to exchange the present SEZ Act, 2005 – many GCCs get pleasure from SEZ associated tax advantages. DESH is anticipated to manipulate all facets of present and upcoming SEZ growth. Unlike within the SEZ ecosystem, the federal government has proposed to create developmental hubs, the place focus will not be restricted to exports however can be on catering to the home market.
It can be essential for GCCs to maintain abreast of the modifications and additionally discover claiming incentives, if any (at present new SEZ items don’t get pleasure from any revenue-tax advantages).
BEPS implementation – Pillar Two
The G20, helmed by India, has expressed its dedication to proceed with the implementation of the BEPS Pillars. While Pillar Two could prima facie not be relevant as a result of Indian company tax charge being larger than the prescribed minimal charge (15 per cent), and additionally contemplating the prevailing Minimum Alternate Tax (MAT) in India, there may very well be onerous compliance and reporting necessities that also want navigation. Overseas funds being made by GCCs, on which taxes are being withheld at a charge decrease than the prescribed minimal charge, might also must be reviewed. Further steerage from the federal government is awaited.
As will be seen, the tax and regulatory atmosphere in India is dynamic and there are a plethora of latest areas that GCCs have to preserve abreast of. It can be essential for them to maintain tempo with these tax developments, not simply to make sure there aren’t any journey-ups alongside the best way, but additionally to turbo-cost their progress story.
(Ruchi Sharma is associate of shoppers & markets at Grant Thornton Bharat, Vijai Jayaram and Aditya Goyal are chartered accountants in Bengaluru)
