A new ruling clarifies taxable income for foreign companies in India


  • The Income Tax Appellate Tribunal in Mumbai has ruled that Fox International can only be taxed for the commissions it earns and license fees it charges in India as opposed to its entire income.
  • Since Fox doesn’t have a permanent establishment (PE) - legal speak for physical presence - in India, it will be levied taxes on the income it earns from business dealings with Indian entities.
  • Earlier, foreign companies with ‘substantial economic presence’ were liable to pay tax in India. This had left room for interpretation, causing some confusion.
In a move that adds some much-needed clarity to the taxation process for multinational corporations with operations in India, the Income Tax Appellate Tribunal in Mumbai has ruled that Fox International, a cable and satellite channels company, can only be taxed for the commissions it earns and license fees it charges in India as opposed to its entire income.

Since Fox doesn’t have a permanent establishment (PE) - legal speak for physical presence - in India, it will be levied taxes on the income it earns from business dealings with Indian entities.

Earlier, foreign companies with ‘substantial economic presence’ were liable to pay tax in India. This had left room for interpretation, causing some confusion.

The latest order has brought some clarity by adding ‘territorial nexus’ to the equation. Now, “a foreign company’s income that can be traced to India, based on the frequency of transactions with Indian entities and the company’s customer base in the country will be taxable,” according to Ved Jain, the former president of Institute of Chartered Accountants of India..

Fox mainly earns income through its Indian subsidiary - Star TV. However, it is primarily a service provider and distributes content and sells ad space for its subsidiary channels - Star Movies, Star World, Star Plus, Channel V, Star Gold - at the global level.

Hence, it will be levied taxes on the agency fees it charges to its subsidiaries as a distributor and seller of ad space.

As a result of the ruling, only the “attributable profits” of a foreign company can be taxed by domestic authorities. In the future, MNCs will be subject to taxes based on deal volumes and the number of consumers.

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