NITI Aayog today released its first paper under the NITI Tax Policy Working Paper Series, focusing on enhancing tax certainty for foreign investors in India. The working paper, titled “Enhancing Tax Certainty in Permanent Establishment and Profit Attribution for Foreign Investors in India,” addresses long-standing concerns about tax clarity, dispute resolution, and predictability.
The paper has been developed by NITI Aayog’s Consultative Group on Tax Policy (CGTP) through extensive stakeholder discussions, reflecting India’s vision of collaborative governance. Drafts were shared in advance for comments before the final version was released.
While presenting the report, the CEO of NITI Aayog highlighted India’s sustained growth in both Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI) over the past twenty years. He noted that better clarity on Permanent Establishment rules would improve tax predictability, helping attract new investors and encouraging multinational companies already operating in India to expand further.
The launch event brought together representatives from the Central Board of Direct Taxes (CBDT), the Department for Promotion of Industry and Internal Trade (DPIIT), the Institute of Chartered Accountants of India (ICAI), and the Central Board of Indirect Taxes and Customs (CBC). Leading experts from firms including Deloitte, EY, and Lakshmikumaran & Sridharan also participated, reinforcing the spirit of public–private collaboration in advancing reforms.
The working paper stresses that FDI and FPI are essential for India’s economic growth, but foreign investors often face uncertainty and compliance challenges, particularly on issues around Permanent Establishments and profit attribution. Despite these hurdles, India has witnessed remarkable growth in FDI inflows over the past two decades, driven by its large consumer base, favourable demographics, and continuing reforms.
To address these concerns, the paper proposes a comprehensive framework aimed at enhancing tax predictability. Recommendations include introducing an optional, industry-specific Presumptive Taxation Scheme for foreign companies, alongside broader legislative clarity, efficient administration, stronger dispute resolution mechanisms, and alignment with global best practices. This approach is expected to reduce litigation, boost investor confidence, and make India’s tax system more robust and future-ready.
The paper also recommends that the Ministry of Finance review and consider the framework for inclusion in future Finance Bills, after further consultation with industry stakeholders, experts, and treaty partners. This would be a decisive step in making India a more predictable and attractive destination for foreign investment.
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