Tax Optimization for Sellable GCCs: Efficient Structures & Strategies

For global enterprises, setting up Global Capability Centers (GCCs) in India has emerged as a key strategic move for operational efficiency and cost optimisation. When setting up their operations in India, parent companies and multinational corporations need to establish a legally recognised “place of business” under Indian law.  

Each of these models comes with its own tax implications and regulatory obligations. Hence, one of the most critical aspects of this kind of expansion is understanding the nuanced implications of Indian taxation. 

Choosing the right structure is not just a legal formality; it is crucial for the parent company’s tax optimisation strategies. Beyond the basics, several advanced tax considerations also come into play, such as permanent establishment risks, transfer pricing regulations, potential indirect tax benefits, etc. 

Understanding Tax Incentives for GCCs 

India has firmly established itself as a global hub for innovation, talent, and operational excellence, making it an attractive destination for multinational corporations to set up GCCs. For tax optimisation, parent companies require a deep understanding of the regulatory landscape and compliance frameworks. 

Leveraging Special Economic Zones (SEZs) for Tax Exemptions 

SEZs are designed to attract foreign investment and promote exports by offering a suite of tax advantages: 

• Income Tax Exemptions: SEZs get a phased tax holiday on export profits: 100% for the first five years, 50% for the next five, and an additional 50% on reinvested export profits for the subsequent five years. 

• Custom Duty Relief: Exemptions on import duties for capital goods, raw materials, and consumables help reduce upfront setup and operational costs. 

• Service Tax Benefits: Services rendered to SEZ units are not subject to service tax, further streamlining operational expenses. 

Benefits of Software Technology Parks (STPs) for GCCs 

For GCCs with a technology or software focus, the STP scheme provides an alternative route to tax planning and optimisation: 

• Indirect Tax Incentives: STP units are eligible for indirect tax benefits at the time of import, especially valuable for entities importing specialised or high-value equipment. 

• Duty-Free Imports: The ability to procure goods without import duties supports leaner capital expenditures and faster deployment of infrastructure.

Structuring GCCs for Tax Efficiency 

Whether it’s choosing between a wholly owned subsidiary, a branch office, or a limited liability partnership, each structure brings its own set of tax obligations, benefits, and long-term implications. 

Choosing the Right Business Structure: PLC vs. LLP 

With an effective corporate tax rate of 25.17%, Private Limited Corporations (PLCs) offer a more favourable tax regime compared to Limited Liability Partnerships (LLPs). While the former has an effective corporate tax rate of 25.17%, the latter is taxed at 34.94%.

However, the parent company must also account for the taxation of profit repatriation, as dividends distributed to shareholders may attract additional tax outflows. On the other hand, LLPs offer greater flexibility in terms of capital structuring and a lighter compliance burden. This can prove to be advantageous for certain operating models.

Location Selection: SEZs, STPs, and State Incentives 

Establishing a GCC in an SEZ can provide various tax incentives, offering significantly lower total cost of ownership. In contrast, STP registration provides access to indirect tax exemptions. This is especially beneficial for GCCs that rely on advanced technology or specialized equipment. 

Transfer Pricing and Compliance Strategies

As multinational corporations deepen their operational footprint in India through GCCs, transfer pricing has become critical for maintaining fiscal transparency and regulatory alignment. A well-structured transfer pricing strategy helps build a defensible position and supports efficient tax optimization.

Ensuring Compliance with Transfer Pricing Regulations

When parent entities set up GCCs in India, all of their intercompany transactions, including the GCC’s provision of services, must adhere to the arm’s-length pricing principles as mandated by the Indian transfer pricing regulations.

One of the most commonly adopted approaches to assess an appropriate remuneration is the cost-plus method. A thorough Functions, Assets, and Risks (FAR) Analysis guides the mark-up in this approach. It evaluates the roles performed, resources deployed, and risks taken by the GCC and its related parties to estimate a defensible transfer pricing position.

Managing Permanent Establishment (PE) Risks in GCCs

When a parent company sets up a GCC in India, the likelihood of triggering a Permanent Establishment (PE) is significantly higher. This has major tax implications, with PE profits taxed at 40%, in addition to increased compliance responsibilities.

Fixed-Place PE risks arise from the nature and extent of activities outsourced to the GCC and how closely the parent entity is involved. Service PE risks typically emerge from employee secondments and cross-border movement.

Tax Planning and Optimisation Strategies

Certain tax planning and optimisation strategies enhance the financial viability of GCCs in India. These include: 

Utilising Double Taxation Avoidance Agreements (DTAAs) 

DTAAs help multinational corporations reduce the risk of being taxed twice on the same income, once in the country of origin and once in India. By leveraging DTAAs, businesses can claim tax credits or exemptions, optimising their overall tax liability.

Best Practices for Claiming R&D Tax Deductions and GST Benefits 

To maximise R&D tax deductions, ensure that all qualifying research expenses are well-documented and aligned with Indian tax laws. For GST, businesses should maintain accurate records of input tax credits and ensure that all eligible expenses are claimed to offset the GST liabilities.

Unlock the full potential of your Global Capability Centre with expert guidance on tax optimisation strategies. Schedule a consultation with ANSR today to explore the best structuring options, tax incentives, and compliance strategies tailored to your business needs.