Does Your GCC Make Your Foreign Parent Taxable In India? Understanding Permanent Establishment Risk For Global Capability Centres

Over the last few years, India has become the preferred location for Global Capability Centres. Multinationals from the United States, Europe, Japan and Australia are setting up large captive units in Bengaluru, Hyderabad, Pune, Chennai and the Delhi NCR region, and these units now do much more than back-office support. They run product engineering, analytics, cybersecurity, finance operations, risk functions and, increasingly, AI and research work.

With this growth, a tax question comes up in almost every boardroom conversation I have with clients: can the GCC itself create a permanent establishment (PE) in India for the foreign parent? If it can, the parent becomes liable to Indian tax on the profits attributable to that PE, apart from whatever the GCC already pays on its own income. The exposure is real, and it is usually discovered at the stage of an assessment or a due diligence exercise, which is rather late to fix a structure.