Taxation of international digital transactions has been a perplexing issue. As per the international tax rules, where an enterprise is a resident in one state with income originating in another state (source country), international tax rules provide that the source country will have the taxing rights over such income only if it is established that the enterprise has a permanent establishment (PE) in the source country. Thus, for the source country to be able to tax profits arising from the digital economy, some physical presence of the non-resident enterprise is required in the source state.

However, today a non-resident can carry out a large amount of internet transactions in the source state without having any significant physical presence there. A website can be launched from anywhere and made available to users anywhere in the world. There is no central point, or physical location, for such a transaction and thus, it may not fall within any country’s jurisdiction for taxation purposes.

This opens up two possibilities: double taxation or non-taxation. The concerned people could be even further creative, and actually set up an online business at a place where none of the founders / promoters are present, thereby making it even more difficult to tax them.

Continue Reading Taxing the Digital Economy: The Rule of ‘Significant Economic Presence’

This is the first post in the our new blog series on the Budget 2018. This is a two-part piece on the amendments proposed under this Budget to the Income Tax Act; published here is Part I. We hope you enjoy reading this as much as we have enjoyed putting this together.


On 1st February, 2018, the Finance Minister Mr. Arun Jaitley presented the last full-year Union Budget before the 2019 Lok Sabha elections. It was delivered against a backdrop of economic slowdown caused by demonetisation in November, 2016 and the implementation of Goods and Services Tax (GST) legislations. The Budget focuses on strengthening agriculture and the rural economy, providing social security benefits and infrastructure creation.

The Finance Minister stated that the Indian economy is reviving and predicted that its Gross Domestic Product will rise to 7-7.5% in 2018-19, and that India is expected to become one of the world’s fastest and largest economies.

In the paragraphs below, we present a snapshot of some of the proposed amendments to the Income Tax Act, 1961 (IT Act) presented in this Budget:

Continue Reading First Impressions of the Budget 2018: Income Tax Act – Part I