Presentation on theme: "The concept of Permanent Establishment (‘PE’)"— Presentation transcript:
1The concept of Permanent Establishment (‘PE’) 6 May 2013The 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.
2Importance of Permanent Establishment Business profits, under Article 7 of the treaty are taxable only if the non resident has a PE in IndiaConcept of PE is used to determine the right of ‘Source State’ to tax business profits of the foreign enterpriseExistence of PE also enables the Source State to tax capital gains, dividends, interest and royalties that are effectively connected/attributable to such PE
3Article 5 of the Treaty – Typical structure of a PE article Permanent Establishment [Article 5]Article 5(1) – Fixed Place PEArticle 5(2) – Specific inclusionsArticle 5(3) – Construct ion PEArticle 5(4) – Exclusions from PEArticle 5(5)- Dependent Agent PEArticle 5(6) – Independent AgentArticle 5(7) – Subsidiary company
5Article 5(1) - Basic Rule PE Location testRight to use testBusiness activity testPermanence testPlace 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 satisfiedThere is an enterprise and it is carrying on a businessThere must be a place of business - eg: premises, facilities, installations etc; The premises etc may not be necessarily ownedPlace 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 sufficientBusiness 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
6Basic 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 accommodationOffice of 3 metres by 6 metresStall or pitch in the marketA computer server located in IndiaInternet websiteWhich of these are a place of business?Residential premises/ Hotel accommodation - yesOffice of 3 metres by 6 metres - yesStall or pitch in the market - yesA computer server located in India - yesInternet website - noThe 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 ServerExamples 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 basisan “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 traderwhere 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 geographicallyIn 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
7Basic Rule PE – Power of disposition test Place should be at the disposal of the foreign enterprise for the purpose of its business activitiesThe foreign enterprise should have the ability to exercise some right or dominion or controlThe 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 bearingEven illegal occupation could constitute a PEWhich of these constitute a PE?Possession of mailing address without an office, telephone listing or bank accountForeign training agency imparting training to Indian Co’s employees in Indian Co’s office at the behest of Indian CoSalesman visiting customers office regularly to collect ordersThe Delhi Tribunal in the case of Motorola Inc. & Others vs. DCIT [(2005) 95 ITD 269] had observed thatTo 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.
8Basic Rule PE – Location test Presence to be 'visible' in the other contracting stateUsually linked to a geographical locationCovers premises as well as tangible assets used for carrying on businessMovable places of business with a temporary fixed location meet the location testActivities 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)
9Basic Rule PE – Duration Test No minimum threshold under Indian lawThe fixed place of business must have a certain degree of permanence, ie should not be of purely temporary natureAvailability 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 missingWhere 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 timeOECD 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 monthsAs 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 differentPeriod ends when place of business disposed of or activities of business are stopped
11Article 5(2) – Specific Inclusions Specific Inclusions – OECD MCA place of managementA branchAn officeA factoryA workshopA mine, an oil & gas well, a quarry or any other place of extraction of natural resourcesWhether inclusions in 5(2) independent of 5(1) ?Additional inclusions - Indian TreatiesWarehouse in relation to person providing storage facilities for others – Treaties with Singapore, USA, Mauritius, Netherlands etcA store or premises used as a sales outlet – Treaties with USA, Netherlands, Germany etcNO. 5(1) must be satisfied to be 5(2)One view – need to satisfy 5(1) firstSecond 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 debateMorgan 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
13Article 5(4) – Exclusions from PE OECD: A PE will not include:Use of facilities solely for storage, display or delivery of goodsMaintenance of stock of goods solely for storage, display or deliveryMaintenance of stock of goods solely for purpose of processing by another enterpriseMaintenance of fixed place of business solely for purpose of purchasing goods, or collecting informationMaintenance 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
14Preparatory or auxiliary character Analysis to be done on a case by case basisThe 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 wholeIf the purpose of the fixed place of business is identical to the purpose of the general enterprise then it is not preparatory or ancillaryA fixed place of business which manages an enterprise cannot be preparatory or ancillary. This is true even if it only manages certain areas of operationThe 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 ancillaryFor 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/ financeNon preparatory – managing enterprise or its part, supervision or control of performance a contract, after sales services to customers, hosting websites of customers
16Article 5(3) – Construction PE Article 5 (3) - Building and Construction PEBuilding site or construction or installation project constitutes a PE only if it lasts more than twelve monthsBuilding site: not only construction of buildings but also construction of roads, bridges or canals etc, and renovation thereto12 Month Period – OECD ModelTwelve month test applies to each individual site or projectA building site should be regarded as a single unit, even if it is based on several contractsDurationSite exists from date on which work begins, including any preparatory workIt continues to exist until work is completed or permanently abandoned. Should not be regarded as ceasing to exist if work is temporarily discontinuedUN ModelSix month test applies to each individual site or projectTemporary discontinuanceSeasonal interruptions e.g. due to bad weather
17Type of Projects Would include: Construction of buildings Roads, bridges, canalsRenovation (involving more than mere decorating) of buildings, roads, bridges, etcLaying of pipelines and excavating and dredgingInstallation of new plant and equipmentPlanning and supervision of the above (UN Model – only supervision)
19Why 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; orconsider 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 customerSo 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.
20Article 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 enterpriseHas an authority to conclude contracts in a Contracting StateHabitually exercising such authority in a Contracting StateIn name of enterpriseNo auxiliary activitiesSatisfaction of all the above conditions is necessary
21Independent Agent – Tests Is he legally & economically independentNot subject to high degree of control(like employer/ employee relationship)Not subject to detailed instructions and control in respect of conduct of businessConduct business according to own view, expertise and methodWill the agent continue its business if principal terminates the service agreementAgent bears the risk of loss from its own activitiesNoYesIs he acting ordinary course of his business?NoYesAre activities wholly, or almost wholly, on behalf of principal?NoYesIndependent AgentDependent Agent
22Independent Agent A PE will NOT include: Carrying on of business in the other contracting state through:a broker,general commission agent, orany other agentof an INDEPENDENT status acting in the ordinary course of their business – legal and economic independence
23Exercise 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 termsCan act independently, without control from the principalIs authorized to negotiate all elements and details of a contractAgency PE would be constituted where approval of contract by foreign enterprise is a mere formalityOECD PositionAgent is required to conclude contracts relating to operations which constitute business proper of the enterpriseParticipation / attendance in mere negotiations of contracts not sufficient to trigger DAPESignatureNo signature but negotiation of all elements and details of the contract in a way binding on the enterprise
24Article 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 principalOrdinarily an independent agent does not constitute a PE if he acts in the ordinary course of his business while acting for his principalKey termsLegal independence - Agent is not subject to significant control/ instruction by principal with respect to manner in which work is carried outEconomic independence - Agent bears “entrepreneurial risk” associated with his business operationsOrdinary course - As commonly understood by relevant industry
25Article 5 (7) - Subsidiary Company Enterprise under the same control need not be a PESubsidiary company will constitute PE if it satisfies any of the conditions for creating a PEParent Company may constitute a PE under Article 5(1) or Article 5 (2) in a State where it has a place of business
26Service PEIndia- 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 - ConditionsFurnishing of services (other than covered by FTS clause)Within a contracting stateThrough employees, or other personnelFor a period or periods aggregating more than 90 days within 12 monthPeriod 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
27Service PEMost 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
28OEDC MC and UN MC – Difference in Approach towards PE OECD MCUN MC1.Under Construction PE, assembly and supervisory activities are not coveredAssembly and supervisory activities are specifically provided for.2.Threshold for construction PE is 12 monthsThreshold for construction PE is 6 months3.Does not provide for “Service PE” clauseProvides for “Service PE” clause4.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
29India’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 MCApproach 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 etcThreshold 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” riskTreaties 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.
37Case 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.IssueDoes 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.
38Case studies on PE Facts F co is a company incorporated in UK It was engaged in supplying aero engines and spare parts to India customersF 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 coEmployees of F co frequently visited I co and occupied the premises of I co during such visitsIssuesWhether 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 onThe 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 unitI co acts most like a sales officeI co and its employees works wholly and exclusively for F co and the groupI co and its employees are soliciting and receiving orders wholly and exclusively for F coThe personnel functioning from premises of I co are in fact employees of F co as is evident from the terms of employmentHence F Co has a PE in India
39Case 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; andpromoting company’s products.IssueCan 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 PEIn India-Singapore DTAA only collection of market information is specifically covered under the exclusion
40Case studies on PE Facts F co, a company incorporated in Singapore, engaged in business of promoting golf by organizing golf tournaments in different countriesF co, organized golf tournament in India and paid fees to I co for using the golf courseThe golf tournament was organized by hiring independent third parties, i.e. contractors and suppliersIssuesDoes F co constitute a PE in IndiaHeld that F co does not have a PE in India as its business in India lacked permanence and was not regularThe 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’
41Case studies on PE Facts UK company carrying on business of publishing magazinesIndian Co. acting as advertisement concessionaire for a UK companyIndian Co. gets 15% commission on gross value of invoices raised by UK company on the Indian clientIndian 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 clientsIssueWhether 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 relevantWhat 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 relevantIndian Co. earns 78% of income from UK Co. and balance from other clientsWholly or almost wholly would mean at least more than 90%There is no PE of UK Co. in IndiaSimilar decision in Al Nisr Publishing, In re (AAR) – 239 ITR 879 in the context of India-UAE DTAA
42Case studies on PE Facts A US co is in the business of providing technical servicesIt has a subsidiary in India rendering similar technical servicesIt renders certain services directly to an Indian company from USIssueWhether income would be taxable as per the provisions of Article 7Force of attraction rule would apply and all revenues would be taxable in India
43Thank YouThe 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.