1. European and International Taxation
Permanent Establishment
Seagate + BBC Case in India
Jean Monnet Module: Managing the EU: Taxation, Economics and Governance
Cluj-Napoca

2. Seagate – Background 1/3 European and International Taxation
Singapore
India
Facts of the case
Seagate Singapore International Headquarters Pvt Ltd (‘Seagate’):
Tax resident of Singapore
Manufactures and sells hard disk drives to Original Equipment Manufacturers (‘OEMs’) in India
Proposed Venture:
To enter into arrangements with Independent Service Providers (‘ISPs’) who will stock the disks in India and supply it to OEMs on a Just-in-Time basis
Questions before the AAR
Whether ISPs would constitute a PE?
If so, what would be the income attributable to the PE, if it has been remunerated on an arms length basis?
Invoice
ISPs
Bonded
Warehouse
OEMs
Fees
Disk Delivery
Applicant
Agreement with
ISPs
Purchase Order
India Tax rate => foreign companies 40%, domestic companies 30%
Singapore tax rate => 17%
Proposal to put a Vendor Management Inventory model
Agreement with ISPs to stock and deliver on JIT basis
Operating system of ISPs to support electronic data interchange, furnish receipt, sale advice and inventory reports

3. Seagate – Contentions of the Revenue and Applicant 2/3
European and International Taxation
Seagate – Contentions of the Revenue and Applicant 2/3
Revenue:
The warehouses of ISPs would constitute a ‘fixed place of business’ and thus would result into a PE of Seagate.
Alternatively, can be constituted as agency PE
Seagate:
Applicant would not have any premises or facilities neither any installations owned, leased or at its disposal in India
Goods would be stored in warehouses of ISPs in India wherein it would have a restricted right of entry
No employees would be based in India
No other physical presence in India

4. Seagate – Ruling of the AAR 3/3
European and International Taxation
Seagate – Ruling of the AAR /3
Whether ISPs constitute a PE?
Demarcated space in the warehouse constitutes a fixed place PE in India
Fixed place meaning ‘distinct situs’ or an ‘earmarked place’ with racks and electronic services
As per the agreement with ISPs
ISPs to provide adequate warehouse space at a specified location
Applicant’s representative to have the right to enter the warehouse premises for the purposes of physical inventory, inspection, audit, repackaging etc
Both applicant and ISP act in cohesion to ensure that goods are delivered promptly
Following facts are not conclusive
Ownership / Possession / Operation of ISP’s warehouse
Merely outsourcing the operations to ISP’s (and not applicant’s employees)
Income attribution to PE
For computing profits of the PE in relation to the sales activity:
Treat ISP as a separate and distinct enterprise wholly independent of Seagate
Amounts paid to the ISPs and other expenses, incurred should be deducted from attributable profits
For a PE under fixed rule: (i) place of business (ii) degree of permanent set up (iii) place of business at the disposal of the foreign enterprise

5. BBC – Background 1/3 European and International Taxation
Facts of the case
BBC Worldwide Limited (‘BBC’):
Tax resident of UK
Sister concern of the BBC Group which operates the BBC World News Channel (‘the Channel’)
Proposed Venture:
BBC appointed BBC Worldwide (India) Private Limited (‘BWIPL’) (a group company) as its authorized agent
In consideration, BWIPL received a commission of 15% of the advertisement revenues received by BBC from Indian advertisers
Questions before the Tribunal:
Any additional income which remains to be taxed in India, in the hands of BBC, despite of payment at arms length basis? UK
BBC
(UK)
Appointment of agent for sale of airtime in India
Revenue
15%
BBC
(India)
sale of airtime in India
Revenue
India
Advertisers
Agreement entered between:
BBC and BBC India under Airtime Sales Agreement
Agent’s role:
solicit orders for sale of advertisement airtime on the Channel
collect payments from Indian advertisers
remit the payments received
Remuneration:
Commission of 15% of the gross advertisement revenues received by BBC
UK Tax rate 21%
PE & PROFIT ATTRIBUTION

6. BBC – Contentions of the Revenue and Applicant 2/3
European and International Taxation
BBC – Contentions of the Revenue and Applicant /3
Revenue:
Dependent Agent PE
Besides soliciting orders, BWIPL also engaged in activities of sales promotion, airtime and sponsorship, identifying new clients and distributors
Morgan Stanley - not applicable
Functions, Assets and Risk analysis (‘FAR’) is not carried out
Wrongly equated the assessment of Indian agent with that of dependent agent PE
Presumptive rate of tax
Since no different sets of figures of receipts and expenditure - Circular 742 dated May 2, 1996 would be applicable
BBC:
Reference was drawn to transfer pricing order of the subsequent year wherein the tax authority has accepted the Fair Transfer Price (‘FTP’) on a FAR Analysis
BWIPL been remunerated on the basis of a FTP
Commission received by BWIPL fully represented the value of the profits attributable to its services - Circular 23 of 1969
BWIPL was remunerated on an arm’s length basis, no further income could be brought to tax
Reference to following circulars and judicial precedents:
SET Satellite (Singapore) Private Limited (Bom) (307 ITR 205)
Morgan Stanley and Company Inc (SC) (292 ITR 416)
DIT v Galileo International Inc (180 Taxman 357)

7. BBC - Ruling of the Delhi ITAT 3/3
European and International Taxation
BBC - Ruling of the Delhi ITAT /3
Tribunal held:
The case has direct applicability of:
Apex Court in the case of Morgan Stanley
Bombay High Court in the case of SET Satellite (Singapore)
Rate of 15% is appropriate as also followed by SET Satellite (Singapore)
BBC had filed its country-wise accounts for India with the tax authorities and difference arose because of foreign exchange fluctuation
Circular 742 would have been applicable only if:
BBC is a non-resident foreign telecasting company;
BBC does not have a branch office or PE in India and
BBC does not maintain country wise accounts of its operations
If the correct arm’s length price is applied and paid to the agent in India, nothing further would be left to be taxed in the hands of the foreign enterprise

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