Taxation Of Permanent Establishments In Large Conracts, Epc Contracts-Emerging Global Practices In Taxation, Tax Planning, And Way Forward In Digital World–A Perspective

Abstract

The imperative of EPC contracts in today’s race to economic development is a key requirement for any organisation across nations. These contracts are specific to the development of economy, and usually have a two part component set up, one being performed outside the state where the project is being executed and the other at the site of the state where the project is getting executed. POEM, Model conventions-OECD and UN,  read with DTAA o determine the formation of a permanent establishment.. EPC contracts are highly competitive and are won against competitive bidding and global tenders, and involve funds flowing into the state where projects are executed, The fund providers practise tax planning, would like to ensure a decent return on capital employed, and avoid the tax effects arising in the process, hence resort to split of contracts, SPV structures which are legally practiced across countries in the globe. The various rulings in different jurisdictions take steps to protect their interests in the process, and evolve rulings which further complicate the position that will be taken by taxman. The authors present the linkages between the tax planning, EPC contract design, different rulings followed across the jurisdictions and look at how the contract are likely to be executed in a digital world in the future. This leads to possible litigation , and more stringent views by Judiciary and novel approaches , structures adopted by the tax payer. The authors also discuss the Post BEPS scenario and how arising of PE may treated in the digital world, in context of Pillar 1 and Pillar 2. All these necessarily demand a substantial amount of planning, involving advisory from reputed tax counsel from external sources. The study is an exploratory study, wherein they attempt to design a framework, bringing out the inter-relationship between the various factors which it is felt will be quite useful in guiding a corporate in structuring of an EPC contract and reducing the risk of facing serious  challenges to the structure from the revenue, and thus aid in area of tax risk mitigation for large projects and bring some clarity to the outcome .