Many American and European companies have moved their bases to India in recent years in a bid to reduce costs. However, proposed changes to the taxation system in India could force them out.

Currently India has a rather complicated tax system. The Indian government has now tabled sweeping reforms which could seriously impact on any businesses working from their country. Part of the new reforms would consider all companies with a “management presence” in the country as being Indian tax residents. This would, therefore make such companies liable to taxation at a rate of 25%. Such reforms could result in a move away from outsourcing IT services to the sub-continent which has been such a prevalent trend for many years now. Most larger companies have an IT presence in India, many of whom choose to have software developed there as it is considerably cheaper than in the UK.

Commenting on this news, Pranay Satra from Ernst & Young stated: “The Indian Government’s proposals are immensely ambiguous. They could have a serious dampening effect on foreign investment.” Pranay also commented that such reforms are likely to ‘spook’ foreign companies.

Recently, many UK-based companies have come under fire for taking advantage of the ‘intra-company transfer’ system by displacing British workers in favour of cheaper workers brought in from India.

It would appear that India is now looking to benefit from their position in this industry.

Satya concluded: “As India has become more globally integrated, tax officials have taken radical new steps regarding global transactions – even those with only an indirect effect on India.”

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