Covid-19: Impact Analysis on the Indian Economy, International Tax and Transfer Pricing

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Covid-19, as we all know, turned the world on its head and has had, inter alia, a huge impact on the businesses, government coffers, mental and physical health of people, financial capacity of individuals. It is more than a year since this virus first broke out, and we are still dealing with its after-effects.

To analyse the impact it has had so far on the economy, the potential challenges it has presented and continues to present in terms of managing business, tax implications, etc., Karnik Gulati, who is a Manager in our Tax & Regulatory practice, has authored a research paper titled “Covid-19: Impact Analysis on the Indian Economy, International Tax and Transfer Pricing”, which analyses in detail (along with case studies) the following aspects:

  • Impact of pandemic – Globally and on India
  • India’s response in combatting with the pandemic
  • International Tax issues
    – Creation of potential permanent establishment (PE)
    → Home (Fixed Place) PE
    → Dependent Agency PE
    → Construction PE
    – Dual residency issues for individuals and non-individuals
    – Concerns related to income from employment/dependent personal services
    • → Stranded workers
      → Work from home model
      → Wage subsidies
      – Impact on foreign tax credit
      – Announcements made by tax administrations of various countries to address potential issues due to the pandemic
  • Transfer Pricing issues
    – Potential challenges for no risk or limited risk entities
    – Potential challenges for entrepreneurial risk entities
    – Potential challenges for intra-group payments
    – Usage of Sixth Method to benchmark transactions in these times
  • Potential after-effects of the pandemic and the way out
  • Way forward: Suggests some of the measures the government and businesses should take to bring back the economy on track :
    – On the economy front
    • → Easy access of capital
    • → Conscientious divestments
    • →Adopting austerity measures
    – On the taxation front
      → Exploring new levy on super-rich
    – Looking beyond numbers
       → Health and medical infrastructure
      → Improve the existing public information technology infrastructure
      → Businesses to put technology at the forefront
      → Impact on the shared economy and gig economy

This paper was published during the International Fiscal Association (IFA) Asia Pacific (APAC) Conference held virtually from 3-5 June 2021. The research paper can be accessed here.

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