NITI Working Paper to Clarify Permanent Establishment and Profit Attribution for Foreign Investors
SDG 8: Decent Work & Economic Growth | SDG 16: Peace, Justice & Strong Institutions
Institutions: NITI Aayog | Ministry of Finance
To boost foreign investment certainty, NITI Aayog has released the first paper in its Tax Policy Working Paper Series on βEnhancing Certainty, Transparency and Uniformity in Permanent Establishment (PE) and Profit Attribution for Foreign Investors in India.β The paper tackles two long-standing pain points: when a foreign company is considered to have a PE in India (a fixed place like a branch or office that creates tax liability), and how much of its global profit should be attributed to India for taxation. This attribution often sparks disputes: for example, whether only local costs should count or whether Indiaβs market contribution also demands a larger share.
To reduce such litigation, the paper proposes codifying PE and attribution rules in domestic law and introducing an optional presumptive taxation scheme. Under this model, instead of complex profit calculations, foreign firms could elect to pay tax on a fixed percentage of their Indian revenues, gaining certainty and reducing compliance costs. Such presumptive schemes already exist in sectors like shipping and aviation, and would allow India to simplify its tax administration while ensuring predictable revenues.
By providing clear rules and a simplified taxation option, India could strengthen its attractiveness for multinational investors, cut down tax disputes, and improve its standing in global ease-of-doing-business rankings. At the same time, safeguards are needed to prevent revenue erosion from profit shifting.
Follow the full news here: PIB Release | Working Paper PDF