Taxation Of Permanent Establishments In Epc Contracts The Emerging Trends, Rulings, And The Way Forward- Issues Arising And Judicial Views Under Direct Taxes -An Indian Perspective

Abstract

The importance of taxation of EPC contracts is critical from the point of view of both the Indian economy, for the contribution it makes to economic growth and development. An EPC contract is composed of two parts Activities done outside the country and Onsite- performed within the country. It involves the participation of many international players, who bring different skill sets, with a separate specific scope, woven into an umbrella contract for the final delivery of a project to the customer, there is a tendency for the taxman to try and tax the contract – treating it mainly as a single, turnkey contract, while the taxpayer tries to reduce the outcome of taxable income. The various motives involved on the part of the taxpayer to reduce the obligations on tax liability to a minimum level, using different arrangements, structures, sub-contracts, split contracts to subsidiaries, and third-party entities in developing countries are carefully thought out using special tax counsel. The study is exploratory and also examines the past studies in motives, key factors influencing the structure of entity to sub-contract, and rulings by the judiciary at various forums like ITAT, High Court, and Supreme Court and examines the various factors which had determined the decision, as to how it will influence the future of taxation of EPC contracts, with post-BEPS effects and the economy going digital too. The cases involving EPC contracts, the different types of PEs arising in the process, motives to save taxes, reasons for employing SPV structures, the role played by governance, tax counsel and then examine the court cases in the Indian scenario, and draw conclusions as to how it will be going forward in future.