While we enjoy benefits of the digital revolution in our everyday lives and businesses, the tax space witnesses a significant vacuum. The existing tax mechanisms drafted in the World War II era were based on a physical nexus.

They typically do not cover today’s evolved business models, where a foreign enterprise may digitally operate in another jurisdiction with no physical presence. This poses a significant challenge for a market economy such as India.

Forward-thinking multinational corporations are revisiting their transfer pricing policies and processes with emerging technologies and automation opportunities. In parallel, COVID-19 has contributed to an acceleration of digital transformation. This transformation is taking place throughout the end-to-end supply chain, with faster and broader adoption of data and predictive analytics, cognitive automation and Artificial Intelligence (AI), robotics, digital supply chains, smart factories, and e-commerce.

COVID-19 has further acted as a catalyst to this digitisation drive and businesses have evolved at an unprecedented pace. In the country, e-retailers witnessed a significant growth; even small offline retailers used digital technology to reach their customers. This article discusses the interplay of OECD’s guidance on a new tax regime under Pillar 1, impact of COVID-19 on the digitisation roadmap, unilateral measures taken by the Indian Government to amend laws for taxing the digital economy, and the need for businesses in this space to be prepared for what lies ahead.

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