An Indian appellate court has stayed the Authority for Advance Rulings (AAR) decision in Mastercard, which adopted an expansive view of when a multinational group’s activities in India create a taxable permanent establishment there. The AAR in Mastercard also concluded that processing fees paid to Mastercard’s regional headquarters by Indian banks and other financial institutions were royalty income.
The Income Tax Appellate Tribunal, Delhi ‘I-1’ BENCH, has directed tax officers not to implement the June Authority of Advance Ruling order in Mastercard until Jan 9, 2019.
In their discussion of the Mastercard ruling in MNE Tax, Nishith Desai Associates attorneys, Shipra Padhi and Anandapadmanabhan Unnikrishnan, contend that the AAR appears to have unreasonably lowered the threshold for the formation of a permanent establishment in India and calls into question well-established understandings on profit attribution. The author say the decision is likely to be of significant concern to MNEs deriving revenues from Indian operations.
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