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Taking the next step in the ‘Significant Economic Presence’ (SEP) concept, the Central Board of Direct Taxes (CBDT) has invited suggestions on the quantum of ‘revenue’ and ‘user’ thresholds that need to be prescribed for determining the SEP of a non-resident in India.
The suggested thresholds and comments should be electronically sent by August 10, the CBDT has said.
It may be recalled that the concept of SEP was introduced by the Finance Act 2018, for taxation of non- residents in India by amplifying the scope of the definition of “business connection”. Business connection was clarified to provide that a non-resident‘s SEP in India would constitute “business connection” of the non-resident in India.
Suggestions have been invited on the revenue threshold of transaction in respect of physical goods or services carried out by a non-resident in India.
Also, now suggestions have been invited on the revenue threshold of transaction in respect of digital goods or services or property including provision of download of data or software carried out by a non-resident in India.
Lastly, suggestions have been invited on the threshold for number of ‘users’ with whom a non-resident engages in interaction or carries out systematic and continuous soliciting of business activities in India through digital means.
Rakesh Nangia, Managing Partner, Nangia Advisors LLP, said: “Though the provisions of SEP were introduced by the Finance Act 2018, the thresholds to determine the SEP of non-residents were awaited.”
Seeks views by Aug 10
The CBDT has followed a collaborative approach by asking the stakeholders to submit their suggestions on the following by August 10, he said.
“Obtaining suggestions of the stakeholders before prescribing the thresholds shows the taxpayer friendly approach of the government,” Nangia added. Typically the threshold of ‘users’ would be in proportion to the Indian customer base that the digital players are exploiting to earn revenue from India without any physical business presence. These provisions are targeted at the digital players who are earning revenues from the vast Indian consumer base over the digital platforms without opening a brick and mortar shop, he said.
“With the taxing mechanism in place, the new and emerging business models operating remotely through digital medium will come within the ambit of Indian Taxation, paying their fair share of taxes in India,” Nangia said.
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