For adjudging the tax implication on e-commerce platforms, it is imperative to first establish whether the platform can be construed as a Permanent Establishment of the foreign concerns (we will call it The Concern in the article below), in India.
The various situations/considerations which will help the authorities decide whether The Concern with e-commerce platform has a Permanent Establishment in India or not, are as follows:
The Concern has a website like abc.in and abc.com in India. This will not be enough to call it PE from tax point of view. A website is simply a set of digital documents and data, whereas PE requires a fixed place of some permanence from where a business is carried on.
The Concern has servers of the website also in India. In this case, if The Concern has control on the existence and location of server, then it will be construed that The concern has a PE in India, since the server location can be considered as a place of business for the Foreign Concern. If the servers are from a third party and The Concern does not have any control on the location of servers. In that case server location cannot be place of business. Hence, in case if server is owned by e-commerce platform or The Concern, then this could be construed as PE since operations contribute directly to productivity and value creation for profits.
Smart Servers in India which not only provide information but also process orders from website visitor. In such scenario, if the control is from foreign country and the server in India has the power to only contract on behalf of foreign enterprise. Even this does not result in establishing a PE as per taxation point of view. It is so because the acceptance of order is not done by the machine itself but by the person or enterprise which inserted the program to perform the same.
Once the definition of PE is satisfied and it is established that an E-commerce platform has a PE in India, the calculation of attributable income to PE would be another challenge. Attributable income is determined by considering the PE as independent entity and all transaction with foreign enterprise will have to be calculated at arm’s length price.