India: Permanent establishment, agency under tax treaty with United States

India: Permanent establishment, agency under tax treaty

The Delhi Bench of the Income-tax Appellate Tribunal held that the liaison office of an overseas taxpayer group constitutes a fixed place permanent establishment (PE) in India under the provisions of the India-United States income tax treaty.

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The tribunal noted that the activities conducted by the company, from the liaison office premises, were substantial and not merely of a preparatory or auxiliary character. While the liaison office’s premises were leased, the offices were constantly used by expatriates who were working in India for taxpayer’s overseas group entity. The business premises were also occupied by the employees of the other group company of the taxpayer, and these employees were working under the direct control and supervision of expatriates.

The tribunal observed that the expatriates of the overseas group entity and employees of the group company were appointed to act as agents of a dependent status, and that the overseas group entity had authority to conclude contracts on behalf of the group company, which leads to the conclusion that is has agency PE in India.

 

The case is: GE Energy Parts v. ADIT

Summary

The taxpayer is a company incorporated in the United States, and is a part of a multinational entity. The taxpayer supplies equipment to customers in India relating to oil and gas business, energy business, transportation business, and aviation business.

The taxpayer is engaged in various sales activities in India, for which the business leaders or heads are generally expatriates, who are appointed to lead the Indian operations, with the support staff provided by the overseas group entity and also by various third parties. These expatriates are on the payroll of the international entity, but work for various businesses of the group.

One entity of the group had a liaison office in India to undertake liaison activities. The liaison office had entered into a global service agreement with an Indian company to provide certain support services to the group company, not including commercial activities.

The tax authorities found that in addition to liaison activities, the taxpayer provided commercial trading activities. As a result, the Assessing Officer issued notices to 24 group entities of the taxpayer and effectively concluded that the taxpayer had fixed place PE as well as a dependent agent PE in India. Because the taxpayer was making sales in India with the involvement of its PE in India, the profits attributable to the PE were subject to tax. These conclusions were affirmed by the tribunal. 

 

Read a March 2017 report [PDF 357 KB] prepared by the KPMG member firm in India

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