CONTEXT:

• The income tax department proposed a change in the methodology for taxing multinational companies (MNCs).
• This includes digital firms, having permanent establishment in India by giving weightage to factors like domestic sales, employee strength, assets and user base.

BACKGROUND:

• Earlier,CBDT had set up a committee to bring greater clarity and predictability for taxing MNCs having permanent establishment in India.
• The MNC having a fixed place of business in India is considered as having a Permanent Establishment(PE) in India and is taxed as per domestic laws.
• MNCs that are incurring global losses or a global profit margin of less than 2% will be deemed to have made a profit of 2%.