New tax system prompts MNCs to ask employees not to do official calls, emails while on vacation in India: Report

Mumbai: The new tax system in India is reported to have an adverse impact on international business as many multinational companies are said to be reluctant to do business discussions, even sending an email while in the country due to the expected tax bill.

Besides the tax, which is likely to be charged as per the new tax system, the Permanent Establishment (PE) regulations are also worrying the companies which are based abroad.

A Permanent Establishment in India is a fixed place of business, wholly or partly carried out by a foreign enterprise operating in India.

If a company is incorporated in India, its income is taxable in India. India has the right to tax the global income of any company based on the principle of "Residential base" of taxation. India also has a right to tax the income of the foreign company to the extent to which the source of income is situated in India.

As per the Indian Income Tax Act (The Act), if any income of a foreign company is received or deemed to be received in India OR is accrued/arised or deemed to have accrued/arised in India, the source of such income is said to be in India and by virtue of principal of "source base" of taxation, India has right to tax such income.

The new tax regime has prompted many multinational companies to ask their staff who are on their vacation or on tour in India not to make any official missives or do any official work which would attract a tax.

The companies worry about being imposed hefty tax charges or other legal issues if their employees make any such move. Even international companies which do not operate in India also fear that any official work made in India could be interpreted as important choices being made in the nation, attracting local taxation, according to tax experts.