Why Multinational Businesses Are Paying Double Tax Despite Having Global Tax Planning in Place

Double taxation — income taxed twice, in two different jurisdictions, without relief — is expensive, avoidable in most cases, and yet it happens to multinational businesses with dedicated tax functions and comprehensive global tax plans. The reason it persists despite planning is that global tax planning and effective double tax relief are two different things. Having a global tax structure doesn't automatically prevent double taxation — it depends on which structure, which treaties, and whether the structure is operating as planned.

Why DTAA Relief Isn't Automatic

India has Double Taxation Avoidance Agreements with over 90 countries. These treaties allocate taxing rights between countries and provide for tax credits or exemptions to prevent double taxation. But treaty benefit is not self-executing — it requires proactive claiming.

To claim DTAA benefits in India, a foreign entity receiving India-source income needs to furnish a Tax Residency Certificate (TRC) from its home jurisdiction, and in many cases a Form 10F declaring specific details. If the TRC isn't obtained, isn't submitted to the Indian withholding tax payer in time, or doesn't cover the relevant financial year, withholding tax is deducted at the domestic rate — often 40% for royalties and fees for technical services — rather than the lower treaty rate. The TRC is a recurring obligation. Many foreign entities obtain it once and assume it covers all future years of India transactions.

Permanent Establishment Risk That Wasn't Identified

A permanent establishment in India means a foreign company's India-source income is taxable in India as if it were an Indian business. PE exposure arises from physical presence, from personnel activity, or from services performed in India beyond a time threshold. Multinational structures designed to avoid PE exposure sometimes inadvertently create it through operational changes — a senior employee spending significantly more time in India, a contract giving an Indian agent authority they didn't previously have, or a service arrangement that crosses the days-threshold under the applicable DTAA. PE exposure, once created, is retroactive. Indian tax authorities can assess PE income from prior years, creating a double tax situation where the income was already taxed in the foreign jurisdiction.

Transfer Pricing Adjustments Creating Double Tax

Transfer pricing adjustments — where Indian tax authorities increase the taxable income of an Indian entity by adjusting related-party transaction prices upward — create double tax when the corresponding income in the foreign related party isn't simultaneously reduced. The mechanism intended to address this is the Mutual Agreement Procedure (MAP) under the relevant DTAA. But MAP is slow and uncertain. Many businesses that receive transfer pricing adjustments in India don't pursue MAP and end up with double tax by default.

Withholding Tax on Cross-Border Service Payments

India applies withholding tax on payments to non-residents for technical services, royalties, and management fees. The domestic rate is 40% plus surcharge and cess. Under most DTAAs, the rate is 10–15%. Getting the treaty rate requires TRC compliance, Form 10F, and sometimes a Lower Withholding Order. Businesses that don't manage this proactively pay domestic rates and try to recover the excess through foreign tax credit claims — which often don't fully offset the double tax burden.

How ASC Group Can Help

ASC Group provides international tax consulting for multinational businesses operating in India. We manage TRC and Form 10F compliance for foreign entities receiving India-source income, assess PE risk for multinational structures operating with India presence, prepare transfer pricing documentation and support MAP applications for Indian transfer pricing adjustments, and structure cross-border payment arrangements to achieve treaty withholding rates. For multinational groups reviewing their India tax position as part of global tax efficiency initiatives, we provide comprehensive India tax exposure assessments. Contact ASC Group to identify and resolve the double tax exposure in your India operations.