Democratising AI revolution: GCCs, tax certainty to power India's rise

India's AI ambitions hinge on strong GCC growth and tax certainty through safe harbour rules and APAs, enabling innovation, investment and equitable digital transformation

The global spotlight has shifted to India as it hosted the AI summit and steered the world with the ancient wisdom of Sarvajan Hitay, Sarvajan Sukhay, concluding a 'Charter for Democratic Diffusion of AI'. The central theme during the AI summit emphasised the urgency of democratising the benefits of AI by preventing concentration of technology in a few hands, promoting local innovation and strengthening AI ecosystems while preserving sovereign legal boundaries.

 

It reinforced the need for international cooperation on data flow, governance and the socio-economic impact of AI. Recognising the pivotal role of data, which has acquired the proportions of a capital asset in an AI-driven age, it must belong to those who generate it. Its potential must be harnessed in an equitable and just manner. It must allow accessibility and inclusion, without monopolies and with a multiplier effect, coupled with the necessity of validity and legitimacy.

 

 

India’s thriving and globally acclaimed Global Capability Centers (GCCs), numbering around 1,700, have registered a compound annual growth rate of 7 per cent between FY20 and FY25. They are the powerhouse of the country’s digital growth and innovation ecosystem, providing employment to nearly 1.9 million people. Constant growth and evolution of GCCs are integral for India to become an AI leader in the world. 

 

GCCs are pioneering AI integration across cloud infrastructures, product ecosystems and enterprise operations, creating connected environments that think and adapt in real time. In this AI-disrupted landscape, the challenge and opportunity lie in going beyond cost efficiency to build innovative work ecosystems. GCCs therefore constitute a foundational pillar for enabling democratisation of AI, and with expansion of GCC units in tier II and tier III cities, they become carriers of deeper AI penetration.

 

The government’s vision to solidify the country’s digital landscape is palpable in the recent Budget document, which has announced a host of tax incentives that are critical policy levers to promote growth of the technology industry. The IT and ITeS industry forms the backbone of India’s services sector and accounts for a major share of revenue.

 

However, transfer pricing litigation has been a constant irritant plaguing the technology industry, largely due to inherent subjectivity in pricing cross-border transactions — an issue amplified in today’s digital economy, where intangibles and algorithms often defy market benchmarks, questioning the very premise of the arm’s length principle. In an endeavour to mitigate mounting litigation, the recent Budget announcement on relaxed safe harbour rules is a welcome move. Tax holidays for the establishment of data centres also pave the way for a robust AI ecosystem within the country.

 

In line with the government’s commitment to providing a litigation-free business environment, the Advance Pricing Agreements (APA) programme of the Income Tax Department has emerged as a highly effective tool in preventing transfer pricing disputes and bringing long-term tax certainty to business communities, creating congenial conditions for attracting foreign investment and accelerating economic growth. 

 

The APA mechanism thrives on mutual trust and transparency, where full cooperation from GCC applicants is as critical as the government’s commitment. Through the APA programme, the government provides multinational enterprises (MNEs) an opportunity to forge negotiated transfer prices for international transactions with their associated enterprises. APAs may be unilateral or bilateral. In a unilateral agreement, the government negotiates transfer prices with the concerned MNE. In a bilateral APA, the government negotiates with the MNE’s resident government authority to ensure fair tax sharing between the two nations.

 

The Workstream III (dispute prevention and resolution) of the ongoing UN Framework Convention on International Tax Cooperation has acknowledged APAs as a vital mechanism for collaborative dispute prevention, offering tax certainty and revenue stability to both taxpayers and administrations.

 

In today’s highly digitalised economic environment, underlying business transactions in an MNE structure have become increasingly complex and span multiple jurisdictions. The lines of value creation across jurisdictions have blurred, posing challenges to tax administrations in correct apportionment of profits and fair tax sharing among nations. Information asymmetry — where the taxpayer knows its own situation better and has access to information that a tax authority does not — further creates mistrust. Here again, the APA programme provides a trustworthy platform to establish transfer pricing in a mutually acceptable and transparent manner. The UN initiative seeks to strengthen the APA programme by securing international convergence on contentious issues surrounding transfer pricing and APA conclusions. 

 

In the global AI race, India is uniquely positioned with its vast bedrock of GCCs and a deep reservoir of highly skilled IT talent. Given this distinctive advantage and a clear policy impetus by the government, India is well prepared to reap the benefits of the AI revolution.

 

However, GCCs need to move higher up the value chain, dedicating their workforce to research and development and innovation to create value-laden intangibles rather than remaining confined to low-value functions with limited remuneration. For India to sustain its leadership, GCCs must foster a risk-reward culture that empowers employees to experiment, innovate and create future-ready solutions.

 

Supported by targeted government policies providing tax certainty, attracting investment and incentivising innovation, GCCs must answer the clarion call of the hour to consolidate India’s position on the global AI map.

 

[The author is Commissioner of Income Tax (APA), Central Board of Direct Taxes, Ministry of Finance, Government of India] 

---

(Disclaimer: These are the personal opinions of the writer. They do not reflect the views of www.business-standard.com or the Business Standard newspaper)