1. The concept of Permanent Establishment (‘PE’)
6 May 2013
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2. Importance of Permanent Establishment
Business profits, under Article 7 of the treaty are taxable only if the non resident has a PE in India
Concept of PE is used to determine the right of ‘Source State’ to tax business profits of the foreign enterprise
Existence of PE also enables the Source State to tax capital gains, dividends, interest and royalties that are effectively connected/attributable to such PE

3. Article 5 of the Treaty – Typical structure of a PE article
Permanent Establishment [Article 5]
Article 5(1) – Fixed Place PE
Article 5(2) – Specific inclusions
Article 5(3) – Construct ion PE
Article 5(4) – Exclusions from PE
Article 5(5)- Dependent Agent PE
Article 5(6) – Independent Agent
Article 5(7) – Subsidiary company

4. Article 5(1) - Basic Rule PE

5. Article 5(1) - Basic Rule PE
Location test
Right to use test
Business activity test
Permanence test
Place of business test
“the term ‘permanent establishment’ means a fixed place of business through which the business of an enterprise is wholly or partly carried on”
A PE can be constituted under “Basic Rule” only if all of above conditions are satisfied
There is an enterprise and it is carrying on a business
There must be a place of business - eg: premises, facilities, installations etc; The premises etc may not be necessarily owned
Place of business must be fixed and there must be a certain degree of permanence; Long duration of 18 to 24 months would comply with the ‘permanence’ test and any duration lesser than 6 months can not be considered sufficient
Business of enterprise must be carried on through this ‘fixed place of business’ - Persons who are dependent on enterprise carry on business of enterprise through a fixed place of business in the country

6. Basic Rule PE – Place of business test
The term ‘place of business’ covers any premises, facilities or installations used for carrying on the business of the enterprise whether or not they are used exclusively for that purpose.
Which of these are a place of business?
Residential premises/ Hotel accommodation
Office of 3 metres by 6 metres
Stall or pitch in the market
A computer server located in India
Internet website
Which of these are a place of business?
Residential premises/ Hotel accommodation - yes
Office of 3 metres by 6 metres - yes
Stall or pitch in the market - yes
A computer server located in India - yes
Internet website - no
The term place of business covers any premises, facilities, or installation used for carrying on the business of the enterprise whether or not they are used exclusively for that purpose.
A place of business may exist even where no premises are available or required for carrying on the business of the enterprise and it simply has a certain amount of space at its disposal;
Following has been held or observed as place of business in judicial precedents:
A Stall or pitch in the market, A customs depot for storing imported goods, Computers installed by a computerized system reservation company in the premises of its subscribers, A facility for berthing at a port which is guaranteed for ships provided on a time charter, Residential premises, Computer Server
Examples of no “Place of Business”
Intangibles (website), Employee has a flat in f country and group company in f country allows the employee to use its business premises on occasional basis
an “office hotel” in which a consulting firm regularly rents different offices may be considered to be a single place of business of that firm since, in that case, the building constitutes a whole geographically and the hotel is a single place of business for the consulting firm. For the same reason, a pedestrian street, outdoor market or fair in different parts of which a trader regularly sets up his stand represents a single place of business for that trader
where a painter works successively under a series of unrelated contracts for a number of unrelated clients in a large office building so that it cannot be said that there is one single project for repainting the building, the building should not be regarded as a single place of business for the purpose of that work. However, in the different example of a painter who, under a single contract, undertakes work throughout a building for a single client, this constitutes a single project for that painter and the building as a whole can then be regarded as a single place of business for the purpose of that work as it would then constitute a coherent whole commercially and geographically
In the case of Galileo International Inc. vs. DCIT [(2008)19 SOT 257], it has been held by the Delhi Tribunal that a PE will nevertheless exist if the business of the enterprise is carried on mainly through automatic equipment and the activities of the personnel being restricted to setting up and operating such equipment. A PE will still exist if the enterprise which sets up machine also operates and maintains them for its own account and whether operated by itself or by a dependent agent.
 In Rolls Royce Plc vs. DDIT [(2008)19 SOT 42], the Delhi Tribunal observed that the mere fact that an enterprise has a certain amount of space at its disposal which is used for business activities is sufficient to constitute a place of business. No formal legal right to use that place is therefore, required. Thus, for instance, a permanent establishment could exist where an enterprise illegally occupied a certain location where it carried on its business. Article 5(1) does not refer that the premises should belong to the enterprise but if it is able to use the same, it is an identified and distinct location and on which it exercises the control, it will be considered as a PE within the meaning of Article 5(1) of the DTAA

7. Basic Rule PE – Power of disposition test
Place should be at the disposal of the foreign enterprise for the purpose of its business activities
The foreign enterprise should have the ability to exercise some right or dominion or control
The place may be owned, rented or leased;
Legal right to use need not be the sole determinant; factual use or exercise of such right will have a greater bearing
Even illegal occupation could constitute a PE
Which of these constitute a PE?
Possession of mailing address without an office, telephone listing or bank account
Foreign training agency imparting training to Indian Co’s employees in Indian Co’s office at the behest of Indian Co
Salesman visiting customers office regularly to collect orders
The Delhi Tribunal in the case of Motorola Inc. & Others vs. DCIT [(2005) 95 ITD 269] had observed that
To constitute a “fixed place of business”, the foreign enterprise (‘f Co’) must have at its disposal certain premises or a part thereof.
The nature of the fixed place of business is very much that of a physical location, i.e. one must be able to point to a physical location at the disposal of the enterprise through which the business is carried on.
Possession of a mailing address in a state without an office, telephone listing or bank account-has been held not to constitute a PE.
The fixed place of business need not be owned or leased by the F Co. provided it is at the disposal of the enterprise in the sense of having some right to use the premises for the purposes of its business and not solely for the purposes of the project undertaken on behalf of the owner of the premises.
Merely because the group company allowed the visiting employees to use certain facilities occasionally, it cannot be said that the foreign enterprise had at its disposal, as a matter of right, certain space which could be characterized as a fixed place of business unless there is something to substantiate that whenever any employee of the foreign enterprise visited India, he could straightway walk into the office of the group company and occupy a space or a table.
In Rolls Royce Plc vs. DDIT [(2008)19 SOT 42], a UK Company (‘F Co.) had a wholly owned UK subsidiary (‘S Co.’) which had an office in India. F Co reimbursed S Co all costs incurred by S Co in the provision of support services with a mark-up. The employees of F Co. visited India frequently and the premises of S Co. were being occupied and used during such visits. The Delhi Tribunal observed that while on the face of it, the premises were occupied by S Co., however, since the entire expense for operation and maintenance of such office in India were being paid by F Co., it could be said that F Co maintained the premises. Further, the premises were also available to all the employees of F Co in respect of any business operations in India. Accordingly, F Co. had a place of business at its disposal and thus, a PE under Article 5(1) could be constituted unless it can be shown that exclusion under Article 5(3) (‘preparatory or auxiliary activities’) applies.
The OECD Commentary provides that whilst no formal legal right to use a particular place is required for that place to constitute a PE, the mere presence of an enterprise at a particular location does not necessarily mean that location is at the disposal of that enterprise. The following examples in para 4.2 & 4.3 of the OECD Commentary further elucidates the said principal:
A first example is that of a salesman who regularly visits a major customer to take orders and meets the purchasing director in his office to do so. In that case, the customer’s premises are not at the disposal of the enterprise for which the salesman is working and therefore do not constitute a fixed place of business through which the business of that enterprise is carried on (depending on the circumstances, however, paragraph 5 (Agency PE) could apply to deem a PE to exist).
A second example is that of an employee of a company who, for a long period of time, is allowed to use an office in the headquarters of another company (e.g. a newly acquired subsidiary) in order to ensure that the latter company complies with its obligations under contracts concluded with the former company. In that case, the employee is carrying on activities related to the business of the former company and the office that is at his disposal at the headquarters of the other company will constitute a PE of his employer, provided that the office is at his disposal for a sufficiently long period of time so as to constitute a ‘fixed place of business’ and that the activities that are performed there go beyond the activities referred to in paragraph 4 (exclusions to formation of PE) of the Article.
A fourth example is that of a painter who, for two years, spends three days a week in the large office building of its main client. In that case, the presence of the painter in that office building where he is performing the most important functions of his business (i.e. painting) constitute a permanent establishment of that painter.

8. Basic Rule PE – Location test
Presence to be 'visible' in the other contracting state
Usually linked to a geographical location
Covers premises as well as tangible assets used for carrying on business
Movable places of business with a temporary fixed location meet the location test
Activities carried on within a defined geographical location could constitute a PE; (eg, a diving offshore vessel functioning within a defined area, dealer selling merchandise from, a mobile van)

9. Basic Rule PE – Duration Test
No minimum threshold under Indian law
The fixed place of business must have a certain degree of permanence, ie should not be of purely temporary nature
Availability of a fixed place of business for a reasonable period should result in compliance with this condition.
An isolated activity should not lead to establishment of a fixed base PE as the ingredients of regularity, continuity and repetitiveness are essentially missing
Where the activities are of a recurrent nature, each period during which the place is used needs to be considered in combination with the number of times during which that place is used (which may extend over a number of years)
A place of business may constitute a Fixed Place PE, even though it exists, in practice, only for a very short period of time, where the nature of the business is such that it will only be carried on for that short period of time
OECD Commentary – PE normally have not been considered to exist in situations where a business had been carried on in a country through a place of business that was maintained for less than six months
As mentioned above, a PE can be deemed to exist only if the place of business has a certain degree of permanency, i.e. if it is not of a purely temporary nature.
 What is ‘permanent’ or not is a matter of interpretation and is unsettled. Though time period for constitution of fixed place PE may depend on the facts of a case and may differ in different situation, the following guidelines may serve as a basis to determine the time threshold that should lead to constitution of a fixed place PE:
 Permanent establishments normally have not been considered to exist in situations where a business had been carried on in a country through a place of business that was maintained for less than six months;
 IBFD’s book ‘Taxation of Permanent Establishments’ has elaborated, in great detail, on the US practice of determining the period of time required to create ‘permanence’ under Article 5(1). It provides that although the precedents do not explicitly create a rule which determines permanence based on a specified period of time, in practice the administrative rulings which deal with activities that last for less than 1 year usually determine that no permanent establishment exists;
 The Indian treaties are based upon the UN Model Treaty. Article 5(3)(b) of the UN Model Treaty suggests a time limit of ‘6 months within any 12 month period’ for constitution of a ‘Service PE’. It may be reasonable to contend that the time limit mentioned in the UN Model for a Service PE will provide a “guiding factor” while determining the satisfaction of the “permanence test”;
 Countries with different policies may use different thresholds, though normally a PE is not constituted unless the use of the place of business has lasted for at least six months and is always constituted for periods greater than 18 months.
Accordingly, as regards presence of employees in India, though no judicial precedent exists laying down time limit for their presence as a potential trigger point for fixed place PE, following the view adopted in international commentaries, it appears that presence of employees of a foreign enterprise in India at the particular place for a period greater than six months can lead to constitution of a fixed place PE in India.
Period to be calculated is from when the enterprise is “prepared” for its activities. Period of time when business is being setup should not be considered if activity substantially different
Period ends when place of business disposed of or activities of business are stopped

10. Article 5(2) – Specific inclusions

11. Article 5(2) – Specific Inclusions
Specific Inclusions – OECD MC
A place of management
A branch
An office
A factory
A workshop
A mine, an oil & gas well, a quarry or any other place of extraction of natural resources
Whether inclusions in 5(2) independent of 5(1) ?
Additional inclusions - Indian Treaties
Warehouse in relation to person providing storage facilities for others – Treaties with Singapore, USA, Mauritius, Netherlands etc
A store or premises used as a sales outlet – Treaties with USA, Netherlands, Germany etc
NO. 5(1) must be satisfied to be 5(2)
One view – need to satisfy 5(1) first
Second view – independent based on principle of statutory interpretation that an inclusive definition intends to add to the primary meaning in 5(1)
Grey area of debate
Morgan stanley observed that Sec(5) defines a PE in an exhaustive manner and it is for this reason that 5(2) refers to placed included as pe of the fco. View 1 seems to be a better and rationale view

12. Article 5(4) – Exclusions from PE

13. Article 5(4) – Exclusions from PE
OECD: A PE will not include:
Use of facilities solely for storage, display or delivery of goods
Maintenance of stock of goods solely for storage, display or delivery
Maintenance of stock of goods solely for purpose of processing by another enterprise
Maintenance of fixed place of business solely for purpose of purchasing goods, or collecting information
Maintenance of fixed place of business solely for purpose of carrying on any activity of a preparatory or auxiliary character
…solely for combination of any of the above

14. Preparatory or auxiliary character
Analysis to be done on a case by case basis
The decisive criterion is whether the activity of the fixed place of business in itself is an essential part of the activity of the enterprise as a whole
If the purpose of the fixed place of business is identical to the purpose of the general enterprise then it is not preparatory or ancillary
A fixed place of business which manages an enterprise cannot be preparatory or ancillary. This is true even if it only manages certain areas of operation
The provisions of Article 5(4) lists a number of business activities which are treated as exceptions to the general definition laid down in Article 5(1) of the Treaty and which are not permanent establishments even if the activity is carried on through a fixed place of business
- In order to fall under Article5(4)(e), there are two different requirements to be distinguished in this connection:
the character of the activity exercised by the place of business - It must be preparatory or auxiliary character;
the object of such activity - It must be solely in favor of the enterprise to which the place of business belongs. It must therefore not aim at directly benefiting any third party as well.
In relation to determining whether or not a specific activity is of a preparatory or auxiliary character, each case will have to be examined on merits, regard being had to the enterprise's overall activity. The question to be therefore asked against this back-ground is whether the activity concerned has a preparatory or auxiliary character in the sense of its being of no or very little significance in view of the other work performed by the enterprise. Also it is only where they are exercised for the enterprise itself that such preparatory or auxiliary activities do not constitute permanent establishment. If they are services rendered for a consideration and for a third party, they will constitute the enterprise's main object and corresponding facilities may well be permanent establishments [Refer to the Commentary by Klaus Vogel on Article 5(4)]
If the purpose of the fixed place of business is identical to the purpose of the general enterprise then it is not preparatory or ancillary
For example, if an enterprise is set up to service patents and other intangible assets, a fixed place of business set up for that purpose cannot be preparatory or ancillary.
What constitutes preparatory/ auxiliary – eg ITES – account reconciliation, data processing, industry analysis, technical presentations to potential users, accounting/ finance
Non preparatory – managing enterprise or its part, supervision or control of performance a contract, after sales services to customers, hosting websites of customers

15. Article 5(3) – Construction PE

16. Article 5(3) – Construction PE
Article 5 (3) - Building and Construction PE
Building site or construction or installation project constitutes a PE only if it lasts more than twelve months
Building site: not only construction of buildings but also construction of roads, bridges or canals etc, and renovation thereto
12 Month Period – OECD Model
Twelve month test applies to each individual site or project
A building site should be regarded as a single unit, even if it is based on several contracts
Duration
Site exists from date on which work begins, including any preparatory work
It continues to exist until work is completed or permanently abandoned. Should not be regarded as ceasing to exist if work is temporarily discontinued
UN Model
Six month test applies to each individual site or project
Temporary discontinuance
Seasonal interruptions e.g. due to bad weather

17. Type of Projects Would include: Construction of buildings
Roads, bridges, canals
Renovation (involving more than mere decorating) of buildings, roads, bridges, etc
Laying of pipelines and excavating and dredging
Installation of new plant and equipment
Planning and supervision of the above (UN Model – only supervision)

18. Article 5(5) & 5(6) - Agency PE

19. Why an Agency PE clause?
An enterprise considering performing business in a host jurisdiction may:
perform the activity by itself;
perform the activity through a separate legal entity; or
consider outsourcing that same activity to an agent (resident or not in the host jurisdiction).
The mere absence of an Agency clause in a tax treaty would represent the possibility of avoiding source taxation just by interposing an agent between the foreign enterprise and the local customer
So Why an Agency Clause?
As such Art. 5(5)(6) includes within the concept of PE (fixed place of business) the situation of a dependent agent who has and habitually exercises an authority to conclude contracts in the name of a non-resident enterprise.
What is interesting to note: the predecessors of the OECD Model did not intend the result of simply avoiding tax through the use of a “third” arm . So we can say that the inclusion of the Agency clause was to counter such possible type of abuses, although probably not for all cases (e.g. independent agents).
This clause has proven over the years to be complex, ambiguous and empty of any guidance regarding the second step of the exercise, i.e. the attribution of profits. This is now leading to increase attention and risk of certain activities of non-residents being deemed an Agency PE.

20. Article 5(5) - Dependent Agent PE (DAPE)
Conditions to be satisfied (cumulative conditions)
Should be a ‘Person’
Agent other than an agent of independent status as per Article 5(6)
Acting on behalf of an enterprise
Has an authority to conclude contracts in a Contracting State
Habitually exercising such authority in a Contracting State
In name of enterprise
No auxiliary activities
Satisfaction of all the above conditions is necessary

21. Independent Agent – Tests
Is he legally & economically independent
Not subject to high degree of control
(like employer/ employee relationship)
Not subject to detailed instructions and control in respect of conduct of business
Conduct business according to own view, expertise and method
Will the agent continue its business if principal terminates the service agreement
Agent bears the risk of loss from its own activities No
Yes
Is he acting ordinary course of his business? No
Yes
Are activities wholly, or almost wholly, on behalf of principal? No
Yes
Independent Agent
Dependent Agent

22. Independent Agent A PE will NOT include:
Carrying on of business in the other contracting state through:
a broker,
general commission agent, or
any other agent
of an INDEPENDENT status acting in the ordinary course of their business – legal and economic independence

23. Exercise the authority to conclude contracts in the name
Person said to have authority to conclude contracts if, he/she:
Has sufficient authority to bind foreign enterprise and decide final terms
Can act independently, without control from the principal
Is authorized to negotiate all elements and details of a contract
Agency PE would be constituted where approval of contract by foreign enterprise is a mere formality
OECD Position
Agent is required to conclude contracts relating to operations which constitute business proper of the enterprise
Participation / attendance in mere negotiations of contracts not sufficient to trigger DAPE
Signature
No signature but negotiation of all elements and details of the contract in a way binding on the enterprise

24. Article 5 (6) - Agent of Independent Status
A person is regarded as an agent of independent status if he is legally and economically independent of the foreign principal
Ordinarily an independent agent does not constitute a PE if he acts in the ordinary course of his business while acting for his principal
Key terms
Legal independence - Agent is not subject to significant control/ instruction by principal with respect to manner in which work is carried out
Economic independence - Agent bears “entrepreneurial risk” associated with his business operations
Ordinary course - As commonly understood by relevant industry

25. Article 5 (7) - Subsidiary Company
Enterprise under the same control need not be a PE
Subsidiary company will constitute PE if it satisfies any of the conditions for creating a PE
Parent Company may constitute a PE under Article 5(1) or Article 5 (2) in a State where it has a place of business

26. Service PE
India- US tax treaty: The furnishing of services, other than included services as defined in Article 12 (Royalties and fees for included services), within a Contracting State by an enterprise through employees or other personnel, but only if – (a) activities of that nature continue within that State for a period or periods aggregating more than 90 days within any twelve-month period; or (b) the services are performed within that State for a related enterprise (within the meaning of paragraph 1 of Article 9 (Associated enterprises)
Service PE - Conditions
Furnishing of services (other than covered by FTS clause)
Within a contracting state
Through employees, or other personnel
For a period or periods aggregating more than 90 days within 12 month
Period of stay or number of days when services are furnished?
Position under the UN model:
the furnishing of services, including consultancy services, by an enterprise through employees or other personnel engaged by the enterprise for such purpose, but only if the activities of that nature continue (for the same or a connected project) within a contracting state for a period or periods aggregating more than 6 months within any 12 month period

27. Service PE
Most treaties specify a period of 90 days to constitute a Service PE (UAE has a specified period of 9 months);
Special clause for “Associated Enterprises” in some treaties where lower time threshold necessary to constitute Service PE eg USA (1 day), UK(30 days), Singapore (30 days);
The concept specifically excludes services covered by Fees for Technical Services (FTS)/ Fees for Included Services (FIS) Article

28. OEDC MC and UN MC – Difference in Approach towards PE
OECD MC
UN MC 1.
Under Construction PE, assembly and supervisory activities are not covered
Assembly and supervisory activities are specifically provided for. 2.
Threshold for construction PE is 12 months
Threshold for construction PE is 6 months 3.
Does not provide for “Service PE” clause
Provides for “Service PE” clause 4.
Maintenance of stock for delivery does not create “Agency PE”
Maintenance of stock for delivery and regular delivery, even without authority to conclude contracts, triggers “Agency PE” – Stock Agent

29. India’s approach towards PE
Combination of OECD and UN Model with emphasis on source based taxation consistent with the object and rationale of the UN MC
Approach not uniform, differs form treaty to treaty
“Service PE” clause is found in treaties with USA, UK, Singapore etc but not in treaties with Mauritius, Germany, Netherlands etc
Threshold for “Service PE” for services to related enterprises is 30 days for treaties with UK, Singapore etc; for USA even 1 day will trigger “Service PE” risk
Treaties with Australia, Germany, Singapore and UK contain “securing orders” clause and Associated Enterprise clause in their Agency PE definition, which is missing in Treaties with Netherlands, Mauritius etc.

30. Important principles

31. Carborandum Ltd vs CIT and Tekniskil Sendirian Berhard vs CIT
DECISION OF THE CASE
Deputation of employees by the Foreign Co to Indian Co not to constitute a PE in India
BASIS
Indian Co to exercise full control over the activities of deputed employees
Foreign Co’s role limited to that of a recruitment agency
Foreign Co’s role limited to making employees available to Indian Co does not tantamount to rendering of services by Foreign Co
Foreign Co not involved with details of the work of the employees
© 2005 BMR & Associates All rights reserved

32. General Motors Overseas Corp vs CIT
DECISION OF THE CASE
Deputation of employees by the Foreign Co to Indian Co to constitute a PE in India
FACTS CONSIDERED
Foreign Co’s principal business was to provide management and consultancy services to Indian Co and other global affiliates
Employees were on the Foreign Co payroll
Costs paid to Foreign Co were not indicative of reimbursement of salary
Foreign Co assumed responsibility of deputed employees
Foreign Co had full right on the inventions, ideas and improvements by the deputed employees
© 2005 BMR & Associates All rights reserved

33. Morgan Stanley ruling FACTS
Captive BPO in India to provide IT support, account reconciliation, research, etc
No revenue generating functions undertaken / significant market risks borne by BPO
MS to send staff to India for stewardship activities including :
Briefing MS on standards of service
Conducting training sessions for MS staff and
Monitoring overall outsourcing operations of MS
Staff of MS not involved in day-to-day management & continue as employees of MS
MS to depute staff (on request), to work under BPO’s control & supervision
Salary of deputed staff to be borne by MS initially
Whether BPO constituted a PE of MS? If yes, taxability of global income
© 2005 BMR & Associates All rights reserved

34. Morgan Stanley ruling DECISION No fixed place PE: No agency PE: | 34
No fixed place of business with a degree of permanence
Business of MS not carried on through BPO
No agency PE:
BPO is an agent of MS carries on activities in India on behalf of MS
Legally & economically dependent on MS
However, no ‘Agency PE’ is constituted as:
No authority to conclude contracts on behalf of MS;
No orders secured by it for and on behalf of MS; and
No stock / merchandise maintained on behalf of MS
| 34
© 2005 BMR & Associates All rights reserved

35. Morgan Stanley ruling Service PE constituted as: | 35
Salary reimbursed by BPO for MS staff engaged in stewardship activities constitute almost 50 percent of salary costs of BPO
Performance appraisal carried out by BPO in consultation with MS
Although ultimate benefit of services of staff endures to MS, they were working for BPO
Employees on deputation actively involved in key managerial activities of BPO
| 35
© 2005 BMR & Associates All rights reserved

36. Case study

37. Case studies on PE Facts
A US Co carrying on business of rendering money transfer services across international borders appoints agents in India for paying the monies to beneficiaries after making identity / credit checks.
The agents premises had to display on a board that they are agents of US Co.
US Co provides its software to the agents which affords access to the agents to US Co’s mainframe computers in USA.
Issue
Does US Co have a PE in India?
NO – US Co does not have a PE in agents premises where there is nothing to show that US Co can as a matter of right enter and make use of the premises of these agents for its business.

38. Case studies on PE Facts F co is a company incorporated in UK
It was engaged in supplying aero engines and spare parts to India customers
F co entered into support service agreement (includes organising events, conferences, business development, maintaining media relations, providing administrative support and co-ordinating technical support) with its wholly owned subsidiary in UK. This wholly owned subsidiary had offices in India (I co)
F co reimbursed the entire cost relating to provision of services to I co and also paid service fees to I co
Employees of F co frequently visited I co and occupied the premises of I co during such visits
Issues
Whether F co has PE in India ?
The office premises though in the name of I co were occupied by F co. The cost of such office is borne by F co. The employees of F co frequently visits I co and the premises are used during such visits. It is therefore a fixed place of business at the disposal of F co through which business is carried on
The activity of this fixed place is not of a preparatory/ auxiliary nature, but is a core activity of marketing, negotiating and selling a product. This is a virtual extension of its customer facing business unit
I co acts most like a sales office
I co and its employees works wholly and exclusively for F co and the group
I co and its employees are soliciting and receiving orders wholly and exclusively for F co
The personnel functioning from premises of I co are in fact employees of F co as is evident from the terms of employment
Hence F Co has a PE in India

39. Case studies on PE Facts
X Ltd., a company incorporated in Singapore, has established a liaison office in India. LO undertakes following activities for a group company, Y Ltd. (also incorporated in Singapore)
collection of market information and intelligence;
meeting potential clients and distributors of products; and
promoting company’s products.
Issue
Can LO be construed to be a PE of X Ltd. or Y Ltd. in India under India- Singapore treaty?
In case the activities fall within the “preparatory and auxiliary activities” exclusion then no PE
In India-Singapore DTAA only collection of market information is specifically covered under the exclusion

40. Case studies on PE Facts
F co, a company incorporated in Singapore, engaged in business of promoting golf by organizing golf tournaments in different countries
F co, organized golf tournament in India and paid fees to I co for using the golf course
The golf tournament was organized by hiring independent third parties, i.e. contractors and suppliers
Issues
Does F co constitute a PE in India
Held that F co does not have a PE in India as its business in India lacked permanence and was not regular
The term fixed means established at a distinct place with certain degree of permanence. As to what constitutes a reasonable period of time to give necessary degree of permanence depends upon the nature of business in the backdrop of the facts of the case.
On the basis of solidarity or isolated activity during the year, it is difficult to infer the existence of a PE. What is conspicuously missing is the ingredient of regularity, continuity and repetitiveness as conveyed by the word ‘carried on’

41. Case studies on PE Facts
UK company carrying on business of publishing magazines
Indian Co. acting as advertisement concessionaire for a UK company
Indian Co. gets 15% commission on gross value of invoices raised by UK company on the Indian client
Indian Co. authorized to collect advertisement charged from Indian clients, convert into foreign currency and remit to UK company.
Indian Co. earns around 80% of commission income from UK company and balance from the other clients
Issue
Whether Indian Co. constitutes PE of UK company in India under India-UK DTAA?
Decision:
Entire work of UK Co. in India is done by the Indian Co. is not relevant
What is relevant is whether UK co is the sole client of Indian Co.
Clause in the agreement that Indian Co. would not accept agency from competitor without consent of UK Co. is not relevant
Indian Co. earns 78% of income from UK Co. and balance from other clients
Wholly or almost wholly would mean at least more than 90%
There is no PE of UK Co. in India
Similar decision in Al Nisr Publishing, In re (AAR) – 239 ITR 879 in the context of India-UAE DTAA

42. Case studies on PE Facts
A US co is in the business of providing technical services
It has a subsidiary in India rendering similar technical services
It renders certain services directly to an Indian company from US
Issue
Whether income would be taxable as per the provisions of Article 7
Force of attraction rule would apply and all revenues would be taxable in India

43. Thank You
The Input area of the Beam is a shape with a picture fill. To change this, ensure you have the image you wish to use (ideally a .jpg or a .png file) in an accessible folder. The image should have a ratio of 1:1 to ensure it does not appear distorted.
When choosing an Input image, follow the principles on The Branding Zone. Customize the Input area of the Beam as described below.
Click View>Master>Slide Master.
Right-click on the Input graphic and select Format AutoShape.
Select Fill>Color and Lines. Select the drop-down arrow next to Color and select the Fill Effects menu. From the Picture tab, click on Select Picture.
Navigate to the folder containing the image you wish to insert in the Input area. Highlight the image and click Insert.
You can now preview the image before continuing. If you are happy with how it looks, click OK to continue. Otherwise, repeat the process until you are happy with your selected image.
To exit from Slide Master View, click View>Normal.
The change you made to the Input graphic should now be visible on the slide.