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India’s Global Capability Centres (GCCs) have long operated in a comfortable grey zone — indispensable to multinational corporations, yet legally structured as low-risk, low-margin cost hubs. That ambiguity was upended this July when the Supreme Court, in the Hyatt International case, redefined how India identifies a permanent establishment (PE). The ruling now looms over every GCC boardroom, as the threshold for what constitutes ‘control’ has shifted — from the physical to the substantive.

According to the Supreme Court’s judgment, the court examined whether Hyatt’s Dubai entity exercised continuous and substantive oversight of its Indian operations, enough to constitute a taxable presence even without an exclusive office. The ruling leaned squarely toward economic substance: if the foreign parent is deeply involved in strategic or operational decisions executed in India, a PE may exist.

According to EY’s technical alert, the court’s interpretation effectively weakens the once-reliable defence that “no fixed premises means no PE”.

For GCCs—many of which now influence product strategy, engineering roadmaps and AI development—the message is blunt: if your India teams bear meaningful responsibility, the tax lens will follow.

The scale that invites scrutiny

The strategic weight of India’s GCC footprint is no longer contested. According to statements by Finance Minister Nirmala Sitharaman, GCCs now employ over 2.16 million professionals. The workforce has expanded at an 11% compound annual growth rate over five years — a scale that places India at the core of global digital operations.

According to Pune-based consultancy Wizmatic’s February 2025 analysis, 24 GCCs crossed US$1 billion in export revenue in FY 2023–24, up from 19 the previous year. These aren’t back offices; they are revenue engines.

That is precisely why tax authorities are tightening their gaze. According to EY, organisations are increasingly leveraging their GCCs for substantive work — analytics, product engineering, research. This in turn may create a scope for the Central Board of Direct Taxes to examine if they should trigger higher profit attribution to India. If value is demonstrably created here, the authorities argue, the taxable share must follow.

Where compliance comfort falls apart

The tension isn’t limited to permanent establishments. India’s Safe Harbour Rules (SHR), once the go-to shield for low-risk captives, have shifted in a way that leaves many GCCs exposed.

According to CBDT Notification No. 21/2025, detailed by BDO India, the government revised the margins and eligibility for safe harbour transactions, especially for high-end software development and contract R&D. The prescribed rates climb into the high teens and mid-20s — far above the 10–15% cost-plus margins at which many GCCs historically operated.

And with the eligibility threshold moved to INR 300 crore, a majority of mid-sized centres fall outside the net. This mismatch could push a large number of GCCs into transfer-pricing audits, escalating potential tax adjustments into the hundreds of millions for some companies.

Litigation becomes the norm, not the threat

The courtroom fallout is already visible. According to Taxsutra’s Litigation Tracker, 2025 is marked by a sustained high volume of disputes centred on GCC characterisations and transfer-pricing comparables. And according to KPMG’s September 2025 insights, multinationals face “huge litigation” as Transfer Pricing Officers escalate matters to Dispute Resolution Panels and appellate forums — processes with no mandated timelines for final closure.

The practical effect? Years of uncertainty, blocked capital, and a cautious stance on expanding India operations.

How multinationals are rewriting their playbooks

In response, companies are scrambling to pre-empt risk. According to a 2025 white paper analysed by CA MONK, Advance Pricing Agreements (APAs) remain one of the few reliable paths to certainty, resolving most disputes when pursued — though adoption remains low because of cost, documentation intensity and multi-year processing times.

Other moves include re-mapping people functions, clarifying where strategic decision-making resides, and revisiting IP ownership to reflect actual risk-bearing. On the table, too, are shifts from captive GCCs to hybrid models that separate routine delivery from higher-value activities.

Yet policy is not uniformly tightening. According to Fortune India, GST reforms in September 2025 — particularly the omission of Section 13(8)(b) — restored export treatment for many IT/ITES services, easing liquidity pressures and releasing blocked input credits. It is a welcome offset to rising direct-tax concerns.

A sector at an inflection point

The real question lurking beneath the litigation and circulars is philosophical: where does value actually reside in a global enterprise? For the first time in years, India is presenting a decisive answer — one that aligns tax outcomes with where meaningful functions are performed.

For GCCs, the coming year will be less about defence and more about definition. Those who can clearly articulate and document where control, risk, and value reside will navigate the shift successfully. Those who cannot may find that the ‘cost centre’ label no longer provides shelter.

In a sector built on precision, the taxman’s new demand is simple: show your workings.