Impact of the Morgan Stanley Decision on the Outsourcing Industry: Uncertainty of Taxation of Multinational Enterprises in India Further Deepened?
Deepti Jayakrishnan & Rukmini Das
Volume 1 Issue 4 (2008)
The ever increasing presence of multi national enterprises (hereinafter MNEs) in India coupled with the status of software as a focal area for increase of India’s exports, makes the Morgan Stanley decision by the Supreme Court extremely significant. The decision holds far reaching tax implications for outsourcing activities of foreign companies as they are no more required to pay tax on their global income earned from business related to their outsourcing arms/units if these are done at existing market prices. Overall it is a very positive ruling for the business process outsourcing (hereinafter BPO) sector. But application of the arms length standard to negate further attribution of profits to a permanent establishment of a foreign enterprise extends the already complex and difficult transfer- pricing rules to the legally and factually distinct situation of the branch, or even to a dependent agent permanent establishment (hereinafter PE).