ABB FZ-LLC Transfer Pricing Rule

You found your school friend on facebook with whom you were not in touch, post your schooling. So on facebook you learn that your friend is in the states and that he is now a manager in some brokerage firm….Your friend, a money man now...Eventually both of you exchange numbers and starts talking on skype. Now if you talk to your USA friend daily for more than say 30 days, then after 30 days will it mean your USA friend has become resident of India….NO…..He will remain NRI….Yeah if he comes to India and stays here for more than 30 days, then you may think of calling him as Resident of India now…..

Keeping in mind the above story, read the below judgement of ITAT in ABB-FZ case and decide yourself, with all due respect, about the correctness of decision rendered by ITAT.

ISSUE:

ABB FZ-LLC incorporated in UAE, rendered service to an Indian company, ABB Limited. Services were rendered through telephone calls and emails. However,  three employees of the Taxpayer travelled to India for a period of 25 days during the relevant financial year.

Provision:

As per DTAA between UAE and India, Service PE will be constituted in India, if services are rendered in India for more than 9 months within a period of 12 months.

Analysis:

The Tribunal observed that “it is not the stay of the employees for more than 9 months, which is required to be there, but it is the fact of the rendering of services or activities which was required to be rendered for a period of nine months within the 12 months period”.

Conclusion:

The consequence of this judgement is that if foreign entity rendered services in India for any period more than the threshold period specified in DTAA, then it will constitute Service PE in India irrespective of existence of employees in India. Such a judgement by ITAT will have far reaching impact. As a consequence of such a judgement, tax authorities may start taxing Foreign enterprises for services rendered in India for a period beyond stated in respective DTAA.