E-tailers' global warehouses may come under tax net

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Warehouses of e-commerce companies based in countries such as Australia, Japan, Italy, Spain, the Netherlands, and Russia may not be exempted from paying the income tax in India once the multilateral instrument (MLI) to prevent base erosion and profit shifting (BEPS) comes into force.

BEPS refers to the reporting framework mooted by the Organisation for Economic 

Co-operation and Development (OECD) and signed by over 100 countries, including India, to prevent exploiting gaps and mismatches in tax rules to shift profits by multinational companies (MNCs) artificially to low-tax regimes.

The representatives of 68 countries on June 7 this year signed an agreement (MLI) in Paris to amend their tax treaties to bring them in alignment with measures to prevent BEPS. However, there is still time for synchronising tax treaties with the multilateral instrument. India has submitted only provisional lists of reservations.


Under most of the current bilateral treaties, “storage of goods and merchandise”, typically done through warehouses, is not considered MNCs’ permanent establishment (PE), says a report by PwC on PEs in India. This is irrespective of whether storage is the main activity or the core business of a company or its auxiliary activities. If MNCs have PEs in India, global income attributed to that establishment is taxed in India. But, under the multilateral instrument, PE exemptions would be given only if storage is not part of the core business of a company, whether on a standalone basis or a group basis. 

However, storing goods and merchandise is a core business activity of an e-commerce business. As such, it would come under PE.

Hitesh Sawhney of PwC says one has to see whether storage of goods and merchandise is a main activity or core business of a company or not to ascertain if these would fall under PE. In case of e-commerce company, storage is the core business, he said. 

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