On February 6, India’s Central Board for Direct Taxes introduced a new regulation 114DA, notification 5/2012, as part of Section 285 of the Finance Act governing foreign-operated liaison offices in India. It states that additional reporting is required, including the submission of Form 49C – which will be applicable from the current fiscal year ending on March 31, 2012. The newly notified Form 49C seeks extensive details of the operations of liaison offices (LOs) and has far-reaching implications for such entities. With the data that the tax department gathers through such annual statements, it is likely that the activities carried on by LOs in India will come under additional scrutiny. It would therefore be advisable for foreign entities operating LOs in India to take a closer look at whether a permanent establishment (PE) exposure exists for them in India.
The additional information required includes:
These details need to be collected and made ready for filing. Under some circumstances, they may trigger an appraisal over the PE status of the LO, possibly resulting in a need to upgrade the entity into a limited company.
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