Employees sent on short overseas assignments by Indian infotech companies may soon have to pay tax in their country of work. 
 
A draft proposal by the Organisation for Economic Cooperation and Development has recommended tightening the tax rules on body shopping and other short-term offshore assignments, which could impact a number of infotech companies in India. 
 
The proposal seeks to restrict the scope of tax exemptions under Paragraph 2 of Article 15 of the Model Tax Convention of the OECD. 
 
It says employees will have to pay income tax in the country in which they are working even if the contracts are for less than 183 days, the commonly accepted definition of short-term status. 
 
The draft, which will now be discussed by the OECD member countries, says the move will help rationalise the tax treatment. 
 
Indian companies often claim that their employees working on short-term projects offshore are their staff and so should be exempted from income tax overseas. But the new OECD definition says tax authorities should not be guided by such contractual distinctions. 
 
According to Amitabh Singh, tax specialist with Ernst & Young, the series of illustrations used in the draft will now provide support for the authorities in the OECD countries while raising their tax demands on such overseas professionals. 
 
The few tax breaks the proposal provides are for cases where a company sends its employees to provide training in software services to employees of another company abroad. 
 
As per the illustration, the tax department of the importing country cannot claim that the employee is liable to pay tax there. For the OECD, the subject has become highly sensitive because of the increasing trend of non-residents providing services across national boundaries.