GCCs today have transcended beyond the traditional roles of providing operational support to foreign corporations and have emerged as innovation hubs that are essential to global business strategy. As GCCs increasingly handle high-value, strategic functions such as R&D, digital services, and data analytics, keeping up with evolving Indian and international tax developments is integral to the GCC set-up and operations strategy.
Set-up and structuring considerations
GCCs could be set up under several models such as captive model, outsourced model, joint venture, and build-operate-transfer (BOT) model, and in several entity forms, such as a Private Limited Company (PLC) or a Limited Liability Partnership (LLP). Besides commercial considerations, the choice of the entity form is often driven by tax and regulatory implications (such as effective tax rate, ease and costs of repatriation, compliance, and tax treaty benefits). For instance, while repatriations of shares of profits from an LLP are tax-free in the hands of the foreign entity, the effective tax rate of a PLC (including dividend taxes) could be lower than that of an LLP if the foreign entity is eligible to claim a credit of Indian taxes against its local tax liabilities.
Depending on the jurisdiction of the foreign entity (and subject to adequate economic substance in light of tax anti-abuse regulations), tax treaty benefits (such as reduced withholding taxes on dividends or royalties) could be explored.
GCCs set-up in specialized jurisdictions (such as special economic zones (SEZ) can avail additional benefits, for instance duty exemptions on imports of capital goods along with an easy and streamlined customs procedure. Besides the former, several states in India provide GCC-specific incentives, such as rental, capital expenditure, payroll support or power subsidies.
Permanent Establishment risks
Under Indian tax laws read with tax treaties, a foreign entity could be said to have a Permanent Establishment (PE) (i.e., a taxable presence in India), if indicatively, it has a fixed place of business in India, or personnel in India conducting operations on its behalf, or dependent agents.
PE risks could potentially arise owing to facts such as unrestricted access to the GCC premises, common branding, secondment of employees to the GCC, or exercise of control by the foreign entity over employees of the GCC (including over hiring and firing decisions). In case a PE is constituted, the foreign entity may be taxed in India at ~38.22% on profits attributable to such PE and may also be subject to additional compliance requirements. Courts in India adopt a substance over form approach when determining the existence of a PE in India, as has also been the case in a recent ruling by the Supreme Court of India in the matter of Hyatt International Southwest Asia Ltd1. Thus, the operations of the GCC must be carefully reviewed and adequate best practices must be put in place to mitigate this risk.
Transfer pricing arrangement
Under Indian tax laws, cross-border transactions between related parties must typically be carried on at the arms’ length price (which is typically arrived at based on a transfer pricing accountant’s report). Thus, where the GCC is constituted as a subsidiary / group entity, an appropriate transfer pricing methodology (such as a costs-plus margin model) must be put in place, depending upon the functions carried out, assets employed, and risks undertaken by the GCC.
Goods and Services Tax (GST)
Services provided by a GCC to overseas entities may typically qualify as ‘exports’, which are subject to zero rate of GST (subject to adherence with prescribed conditions). However, where the GCC is held to be an intermediary (i.e., is said to merely facilitate transactions between two parties), historically the place of supply of such services has been deemed to be in India, and in such case the benefits of zero rate of GST are not available. In this regard, India’s GST council has recently recommended an amendment to intermediary provisions; should these be codified into law, the place of supply for intermediary services shall be the location of the client and the services will be considered to be in the nature of ‘exports’. Therefore, all such services provided by GCCs to overseas entities (without the requirement to assess if such services could constitute an intermediary service) would be treated as zero rated supplies, subject to prescribed requirements under GST law.
Other aspects
Some other aspects that merit consideration from a tax perspective when setting up a GCC include IP generation and its transfers to group entities, stock-linked employee incentives, local leases, and withholding tax compliance on payments to and by the GCC. Further, GCCs set up by third-party vendors in India may be required to be transferred to a wholly-owned subsidiary of the foreign entity (which could, depending on facts, indicatively entail a transfer of the business undertaking or of select assets). Depending on the facts of the case, these aspects must be reviewed to identify potential implications.
Conclusion
India offers immense operational value for GCCs, but the tax framework demands comprehensive attention so as to avoid disputes and litigation down the line. Transfer pricing, secondment arrangements, PE risks, and GST compliance, and evolving global and Indian tax practices all intersect to form a complex matrix that requires tailored planning. A well-structured GCC with clear intercompany agreements, robust documentation, adequate best practices, and proactive tax governance can not only mitigate risks of litigation but also optimize costs and operational efficiency.
1 Hyatt International Southwest Asia Ltd. v Additional Director of Income-tax (Civil Appeal No. 9766 of 2025)
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