Types of P.E that can be triggered in India
Types of P.E that can be triggered in India
Understanding of Permanent Establishment is basic criteria for sheer understanding of International Taxation. Once the basics are understood, further arduous journey of understanding International Taxation can be endeavoured. Article 5 of mostly all DTAA’s deals with concept of P.E. Below is the brief gist of types of PE that can be triggered by the taxmen.
Fixed Place PE: Two tests are required to be met in order to call existence of Fixed Place PE in India.
Permanence Test: It implies some sort of permanence in the source country, say for 6-12 months. However if the nature of activity done does not require such long presence in source country, then even short span of time will be treated to have satisfied Permanence Test. An apt example for this is, recent ruling of Apex Court in the case of F1. Hon’ble SC held that even if F1 had control for just few days, then also it will be deemed to have satisfied the test of permanence. This is because main event of F1 was held for few days only and during such few days F1 had full control over such place.
Disposal Test: If non-resident has a place in India over which it can exercise full control, then disposal test will be deemed to be satisfied. Such place need not necessarily be a big office. Even a cabin specifically earmarked for employees of non-resident in India can satisfy the Disposal Test. Like in recent ruling in case of Production Resource Group it was held that even if Production group had just 1 room earmarked for it, such room was under full control of non-resident and consequently such room was treated to be fixed place PE in India of Production Group.
Service PE: Service PE is triggered when employees of Non-Resident visits India for a specified period of time.
For Instance, as per India-UAE DTAA, Service PE will be triggered if employees of a company in UAE visits India for a period exceeding 9 months within any 12 months period. To delineate concept of Service PE further, lets take help of recent ruling in case of Electrical Material Centre Co. Ltd. In this case, it was ruled that stay of employees in India relevant. Since employees stayed in India for 90 days, less than 183 days, no existence of Service PE in India.
Agency PE: A non-resident is said to have Agency PE in India if any of its agents or employees in India have the authority to conclude contracts in India on behalf of non-resident.
To ponder more over Agency PE, lets look at the judgement in case of SPE Networks India Inc. In this case SPE, a USA company provided rights to SET India for distribution of AXN channel in India. From such distribution, the revenue generated will be shared among SPE and SET at some predetermined percentage, The T.P officer held that SET India is agent of SPE, USA and thus there exists Agency PE in India of SPE. The Mumbai ITAT ruled that SET India was making payment to SPE in the form of purchases but not in the form of dependent agents. Further SET India didn’t possessed any authority to conclude the contract on behalf of SPE in India.
P.S.: The above write up is dedicated to just prod the memory with basics of P.E. There are avalanche of case laws coming every month by various appellate authorities on determination of existence of PE.
