In the previous column on this publication, we discussed the opportunity India has to build itself as a Global Capacity Centres (GCC) hub for the world, in the wake of a US$ 100,000 H-1B visa petition fee. The opportunity to build around a US$110 billion industry, with additional investments of around US$ 10-15 billion, which can employ an additional 2-3 million skilled Indians, is massive. This has the potential to create a huge offshoring ecosystem very similar to the currently dominating Information Technology Services and IT Enabled Services Sectors, which will service not only the US but also various other countries including Japan, Korea, and Taiwan. This will also reduce our dependence on US visas and the need to export a skilled workforce to other countries. Along with these benefits, it will also create higher export earnings and attract equally huge investments in the country.

GCCs of Multinational Corporations operate in three different geographies – inshoring, nearshoring, and offshoring. Inshoring is having their GCCs in their home countries. Nearshoring is setting up GCCs in a nearby or neighbouring country. The biggest example of this model is American companies setting up GCCs in Mexico and Canada. Offshoring is where GCCs are set up in a faraway country, like American companies setting up GCCs in India. This highlights that the GCC business is very competitive globally and equally fluid. Now, very recently, Canada announced its intent to issue visas to Indian skilled professionals who could be hired to work in American companies’ GCCs in Canada. In other words, American companies have options of opening GCCs in any country and countries are competitive in attracting GCC investments by relaxing laws and regulations, which now includes visa requirements to attract talent. In other words, India is not alone in this race to attract more and more investments by GCCs.

However, these objectives to build a thriving GCC ecosystem are fraught with challenges and hurdles created by the fragmented compliance and regulatory landscape, an ever-evolving and thereby inconsistent and complicated legal, compliance, and regulatory framework, and policy gaps. In this part, we analyse those issues and explore ways and means to resolve them.

Multinationals setting up their GCCs in India face a host of regulatory and compliance issues. This starts with smaller or initial operations started by MNCs. Many MNCs prefer to initiate operations in other countries as a Branch of the MNC. This is because MNCs may not want to create a separate company during the initial phase when it is exploring the markets and initial revenue streams are relatively less and don’t justify a high compliance cost and exercise. This is where issues pertaining to higher tax rates for foreign companies kick in. High tax rates of 37.93 per cent for GCCs with a meagre taxable income of Rs 10 crores (35 per cent Income Tax 5 per cent surcharge 4 per cent health and education cess) is quite higher than the normal corporate income tax rate of 25 or 30 per cent as the case may be and surcharge and cess added to it. To reduce tax liability, foreign companies are forced to set up their own subsidiaries in India. This is a double whammy because just setting up an Indian subsidiary increases........

© News18