NITI Aayog Releases Working Paper on Enhancing Tax Certainty for
Foreign Investors under Vision 2047
·
NITI Aayog Releases NITI Tax Policy Working
Paper Series–I on Enhancing Certainty, Transparency and Uniformity in Permanent
Establishment and Profit Attribution for Foreign Investors in India
As
part of India’s Vision
2047, NITI
Aayog has released its first paper under the NITI Tax
Policy Working Paper Series–I on 3
October 2025, titled “Enhancing Tax Certainty in
Permanent Establishment and Profit Attribution for Foreign Investors in India.” Developed through
extensive stakeholder consultations, the paper aims to strengthen India’s tax
framework to promote ease
of doing business, attract FDI, and ensure tax predictability.
The
working paper addresses long-standing concerns of foreign investors regarding Permanent Establishment (PE)
rules and profit
attribution, proposing a comprehensive
framework to enhance tax certainty. Key recommendations
include:
·
Introduction of an optional,
industry-specific Presumptive Taxation Scheme for foreign
companies;
·
Greater legislative
and administrative clarity;
·
Efficient dispute resolution mechanisms; and
·
Alignment with international best practices.
NITI
Aayog’s CEO emphasized that refining PE approaches will improve investor
confidence and encourage multinational expansion. The launch event saw
participation from CBDT,
DPIIT, ICAI, CBC, and major consultancy firms, reflecting a public–private collaborative approach.
The
paper suggests that the Ministry
of Finance may consider incorporating the proposed framework in
future Finance Bills
after due consultation, marking a significant step toward a transparent, predictable, and
investment-friendly tax regime.
As India advances towards its Vision 2047,
creating a transparent, predictable and efficient tax framework is essential for
long-term growth. NITI Aayog's Consultative Group on Tax Policy (CGTP) focuses
on facilitating Ease of Doing Business, promoting FDI, simplifying tax laws and
building a future-ready system. Reflecting the spirit of collaborative governance,
the working paper was developed through extensive stakeholder consultations, with
drafts shared for comments and suggestions prior to finalization.
In line with these efforts, NITI Aayog
on 3 October 2025 released the first working paper under the NITI Tax Policy
Working Paper Series–I, titled “Enhancing Tax Certainty in Permanent Establishment
and Profit Attribution for Foreign Investors in India.” The paper addresses
long-standing concerns of foreign investors on tax predictability and dispute resolution
to strengthen India’s investment climate.
Releasing the working paper, the CEO,
NITI Aayog, highlighted India’s sustained growth in Foreign Direct Investment (FDI)
and Foreign Portfolio Investment (FPI) over the past two decades, reflecting strong
economic fundamentals. He noted that refining approaches to Permanent Establishments
will provide greater clarity and predictability in tax regulations, thereby attracting
new foreign investments and encouraging expansion of existing multinational corporations.
The launch witnessed participation from representatives of CBDT, DPIIT, ICAI, and
CBC, along with domain experts from Lakshmikumaran &
Sridharan, Deloitte, EY, and others, underscoring the spirit of public–private collaboration
in advancing tax policy reforms and fostering a more predictable investment environment.
The working paper highlights that FDI
and FPI are recognized as vital catalysts for India's economic growth. A stable
tax regime is crucial for instilling confidence in foreign investors. However, foreign
investors frequently encounter significant tax uncertainty and compliance burdens,
particularly stemming from issues related to Permanent Establishment (PE) and the
attribution of profits.
Despite these tax irritants, India has
witnessed a remarkable increase in FDI inflows over the last two decades, demonstrating
its inherent attractiveness as an investment destination. This growth indicates
that India’s fundamental economic strengths, such as its large market, demographic
dividend, and ongoing economic reforms, are powerful drivers of investment.
This working paper proposes a comprehensive
framework designed to enhance tax certainty and predictability for foreign investors.
The recommendations include the introduction of an optional, industry-specific Presumptive
Taxation Scheme for foreign companies, coupled with broader legislative clarity,
administrative efficiency, robust dispute resolution mechanisms, and strategic alignment
with international best practices. This multi-pronged approach is anticipated to
dramatically reduce litigation, boost investor confidence, improve administrative
efficiency, and secure India's tax base by attracting higher quality, sustainable
FDI.
It recommends that the Ministry of Finance
consider the proposed framework for inclusion in future Finance Bills, following
consultations with industry, experts, and treaty partners. This reform would be
a significant step towards making India a more attractive and predictable investment
destination.