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Holding the investment

Permanent Establishments � One of the risks with managing investments in India is managing the Indian permanent

12 PricewaterhouseCoopers

establishment position, where if the Indian tax authorities successfully argue that there is an Indian permanent establishment of the foreign operations in India, then there maybe significant adverse tax implications. It is therefore important to carefully manage the operations carried out at the Indian level. In practical terms in the E&C industry, activities generally take a long duration to complete, and hence PE clauses (especially fixed base and service PE) come into play in this industry more often.

In the E&C industry, the execution of projects is undertaken substantially by way of an engineering, procurement and construction (EPC) contract. A typical EPC contract will have the following scope of work in a single project:

Supply of equipment (offshore and onshore)
Installation/commissioning
Services (offshore and onshore)
Software/technology transfer (offshore and onshore)
Under a typical EPC contract, a non- resident contractor performs a multitude of activities. The scope of work under an EPC contract would include both onshore and offshore activities (see Figure 3). Taxability of payments received by foreign companies under EPC contracts has become a matter of great debate and litigation. Onshore supplies and services are normally taxable in India. Offshore supply of goods and services under a composite contract are something of a grey area. The Indian revenue authorities often attempt to bring the entire EPC contract, including the offshore supplies and services, within the range of taxes in India. The tax authorities may cite a business connection in India, and also note the presumed indivisibility of EPC contracts. Nonetheless, some recent landmark judicial rulings with regard to EPC contracts in India suggest that tax outcomes for each of the components of the contract must be determined independently. These rulings have brought about a general principle that profit from offshore supplies would not be taxable in India, subject to the following conditions:

Principal to principal transaction
Title (i.e. risk and ownership) in the offshore supplies passed to the buyer on high seas (outside India)

Sale consideration is received outside India

Sale is at arm's length
Although the above rulings suggest that offshore supply and services may not to be taxed in India, the taxability depends on the specifics of each case. Further, the revenue authorities have not accepted the above rulings and the matter is pending before the higher judicial authority. E&C companies should take care to structure contracts in a tax efficient manner, taking into account the particulars of each project.

In order to make infrastructure projects more attractive for companies and investors, the Indian Government is re-examining the existing depreciation policy for such entities. The infrastructure sector may be eligible for a higher rate of depreciation in book value for BOOT (build, own, operate, transfer) projects. The Government is still examining this proposal and also evaluating whether depreciation shoul本论文由英语论文网提供整理，提供论文代写，英语论文代写，代写论文，代写英语论文，代写留学生论文，代写英文论文，留学生论文代写相关核心关键词搜索。