We would like to ensure that you are still receiving content that you find useful – please confirm that you would like to continue to receive ILO newsletters.
26 July 2013
The Delhi Income Tax Appellate Tribunal has held(1) that an Indian subsidiary of a US-based company, which provided IT-enabled call centre or back office support services to the US company and its customers outside India, is a fixed-place permanent establishment in India under Article 5(1) of the India-US double tax agreement.
This finding was based on the premise that the US company's employees frequently visited the premises of the Indian subsidiary in order to supervise, direct and have control over the operations of the Indian subsidiary. Furthermore, these employees had a fixed place of business at their disposal. The tribunal also observed that in practice, the Indian subsidiary was a projection of the US company's business in India and carried out its business under the control and guidance of the US company, without assuming any significant risk in relation to the functions performed.
The tribunal affirmed the position that no further profits can be attributed to a permanent establishment once an arm's-length price has been determined for an Indian associated enterprise that subsumes the functions, assets and risk profile of the alleged permanent establishment. However, the tribunal has laid down an approach that allows the profits attributable to the permanent establishment to be arrived at.
This judgment is significant regarding the relevance of the 'place of disposal test' and the 'deputation of employees', which have led to the subsidiary becoming a permanent establishment of a foreign company under the provisions of the India-US double tax agreement. Thus, even though Article 5(6) of the agreement states that a subsidiary should not constitute a permanent establishment of its holding company, it should also be examined whether a company satisfies the principles laid down under Articles 5(1) to 5(5) of the agreement for constituting a permanent establishment.
For further information on this topic please contact Pranay Bhatia or Vidushi Maheshwari at Economic Laws Practice by telephone (+91 22 6636 7000), fax (+91 22 6636 7172) or email (firstname.lastname@example.org or email@example.com).
The materials contained on this website are for general information purposes only and are subject to the disclaimer.
ILO is a premium online legal update service for major companies and law firms worldwide. In-house corporate counsel and other users of legal services, as well as law firm partners, qualify for a free subscription.