Should the world follow India on profit attribution?

BY MARK BEVINGTON

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Like it or not, India’s proposed revisions to PE profit attribution (https://incometaxindia.gov.in/Lists/Latest%20News/DispForm.aspx?ID=306) require serious attention. Profit apportionment is ‘formulary’ – it starts with India’s share of the higher of operating margin/2% allocated to India by equal reference to Indian assets, employees and sales. Users are an extra factor for digital companies with a 10%/20% weighting depending on intensity. So profits are shared but not losses.

A formulary approach makes sense to many. Yet, each uncertain input breeds and multiplies uncertainty. India’s proposals require determination of assets and employees outside India present ‘in respect of’ Indian operations, whatever that means. Is this the path to less dispute? For many, it will seem like a more certain path to double tax. Hence a bigger lesson: the need to support OECD leadership towards a unified approach. If India’s approach is unpalatable, managing a different approach for every market territory is unthinkable.