New norms for taxing MNCs: Why amending rules on profit attribution matters

MNCs with business operations in India should review the implications of the recommendations on their business models, as well as consider any risk of double taxation

Bilateral international tax treaties set the principles for taxation of international business. Under these, profits of a multi-national enterprise are taxable only in the country where the enterprise is resident. However, this rule is subject to an exception when the enterprise has a permanent establishment (PE) in another country. In that case, profits that are “attributable” to the PE may be taxed in the country where the PE is situated. The attribution of profits to PEs has always been subject to controversy as practices of countries and their interpretation have varied considerably. However, over the last several years a broad