Permanent Establishment – Practical Issues

Permanent Establishment – Practical Issues
Study Circle Meet - The Institute of Chartered Accountants of India, Bangalore Branch Presenter: CA. Arvind S Aug 28, 2019

Structure of our discussion
Concept of PE Various types of PE with illustrations Exclusions to the PE Attribution of profits Recent developments Key compliance requirements

Concept of PE Defined concept in DTAA.
Main use is to determine the right of a source state to tax the business profits of an enterprise of the other state. A contracting state cannot tax the profits of an enterprise of the other contracting state unless it carries on its business through a PE situated therein. Akin to ‘Business Connection’

Types of PE Types of PE Fixed place PE Installation PE Agency PE
Service PE Building site, Construction, Installation of assembly project -PE if 6/12 months Service by employee or other personnel PE if services last beyond specified time Preparatory and auxiliary activities – no PE Income generating activities – PE Dependant Agent – PE Independent Agent – no PE

Fixed Place PE For the purposes of this Convention, the term “permanent establishment” means a fixed place of business through which the business of an enterprise is wholly or partly carried on.” Requisite conditions: An Enterprise Carrying on a business Through a ‘place of business’ Which is a ‘fixed’ place Through which the business of the enterprise is wholly or partly carried on

Determination of PE Place of Business Test
The business must be conducted through a ‘place’. ‘Place’ of business is any premise, facility, machinery etc. used by a foreign company. Disposition Test The place of business must be at the disposal of the enterprise; right to use. Location Test The fixed place of business must be located in a certain territorial area Permanence Test The use of the fixed place of business must last for a certain period of time. Business activity test The activities performed through the fixed place of business must be of a business character

Illustrative list of PE – per OECD model
The term “permanent establishment” includes especially: a) a place of management; b) a branch; c) an office; d) a factory; e) a workshop, and f) a mine, an oil or gas well, a quarry or any other place of extraction of natural resources.” As appearing in OECD Model Convention

Disposition test - illustrations
Sr. No. Facts of the illustration Whether disposal test is satisfied 1 A salesman regularly visits a major customer to take orders and meets the purchase director in his office. No, since the customer’s premises are not at the disposal of the enterprise 2 An employee of a company is allowed to use an office in the headquarters of another company for a prolonged period of time to ensure that the latter complies with its obligations under contracts concluded with the former. Yes, since the employee is carrying on activities related to the business of the former company from the office of the latter 3 A road transportation company uses the delivery dock at a customer’s warehouse every day for a number of years to deliver goods purchased by the latter. No, since the company’s use of the delivery dock is limited to delivery of goods to customers and it cannot use the delivery dock for any other purpose. Source: OECD Commentary

Permanence Test Essential that there is a certain degree of permanence in relation to business activity in India. India’s bilateral treaties do not have any thresholds relating to presence of a foreign company in the country for it to constitute a fixed place PE. OECD Commentary and UN Commentary : 6 months Reasonable period of time – Fixed place PE (Vishakhapatnam Port Trust – AP HC) Landmark ruling of Formula One World Championship Ltd.

Formula One World Championship Ltd v. CIT (80 taxmann.com 247 (2017)
Facts: FOWC is a tax resident of UK. FOWC entered into a Race Promotion Contract (RPC) by which it granted to Jaypee Sports the right to host, stage and promote Formula One (F1) Grand Prix of India. An Artworks license Agreement contemplated in RPC was also entered into between FOWC and Jaypee the same day permitting the use of certain marks and intellectual property. On the day of entering into a RPC contract, another agreement is signed between Jaypee and three affiliates of FOWC whereby Jaypee gives back circuit rights, media and title sponsorship, to Beta Prema 2 (FOWC Affiliates) and paddock rights to Allsports (FOWC affiliates). The duration of the actual event was three days. FOWC (Commercial Rights Holder) FOWC Affiliates Outside India  India  Jaypee (Owner – Race circuit) Race Promotion Contract and Artworks License Agreement  Circuit rights, Media and title sponsorships and paddock rights

Issues: Does FOWC has a permanent establishment in India? Does ‘Buddh International Circuit’ qualify as a fixed placed through which the business of FOWC is carried out? Does FOWC satisfy the disposal test for PE under Article 5(1)? Does the duration of the event has an effect in determining whether FOWC has a PE in India? Lower court rulings: AAR – Held royalty; No fixed place of business, No Business Activity, No PE Delhi HC - PE FOWC (Commercial Rights Holder) FOWC Affiliates Outside India  India  Jaypee (Owner – Race circuit) Race Promotion Contract and Artworks License Agreement  Circuit rights, Media and title sponsorships and paddock rights

Held: Fixed Place PE: Existence of Fixed Place of Business: BIC Business activity : Holding a Grand Prix constituted a Business activity FOWC and its affiliates controlled the entire event FOWC and its affiliates could exploit commercial rights including media rights, hospitality and sponsorship. Beta Prema 2 had circuit rights, media and title sponsorship Paddock Rights granted to All sports FOAM had rights in relation to generating TV Feed All revenues were to FOWC and its affiliates above. FOWC had full access to the circuit and could dictate as to who was authorized to access the circuit and organizing any other event on circuit was not permitted. FOWC (Commercial Rights Holder) FOWC Affiliates Outside India  India  Jaypee (Owner – Race circuit) Race Promotion Contract and Artworks License Agreement  Circuit rights, Media and title sponsorships and paddock rights

Held: Permanence test: Number of days of event would not make any difference as FOWC had full access through its personnel during the entire duration of the event. The court observed that permanence in such fixed place could be relative having regard to the nature of the business, and thereby held that the circuit itself constituted a fixed place of business. FOWC (Commercial Rights Holder) FOWC Affiliates Outside India  India  Jaypee (Owner – Race circuit) Race Promotion Contract and Artworks License Agreement  Circuit rights, Media and title sponsorships and paddock rights

Mastercard Asia Pacific Pte. Ltd. (94 taxmann.com 195 (2018) - AAR
Facts: MasterCard Asia Pacific Pte Limited (MasterCard Asia Pacific), was MasterCard’s regional headquarters for the Asia Pacific, Middle East, and Africa and a wholly owned indirect Singapore subsidiary of MasterCard USA. Service involved electronically processing payments between a cardholder’s bank and a merchant’s bank using the MasterCard network. Under royalty agreements signed by Indian financial institutions, MasterCard Asia Pacific received transaction processing fees in exchange for authorization, clearing, and settlement of card-based transactions, and additional fees for incidental services. Each financial institution was provided with a MasterCard Interface Processor (MIP) – an electronic device the same size as a standard personal computer –to be placed in the institution’s premises, which connected the financial institution to the MasterCard network. Mastercard Asia Pacific Pte. Ltd.   Indian Banks and other financial institutions Services per Agreements  Payment processing service fees

Facts: MasterCard Asia Pacific’s Indian subsidiary, MasterCard India Services Private Limited (MasterCard India), owned and maintained the MPs placed in Indian financial institutions and also provided support services Questions before AAR: Whether Mastercard Asia Pacific Pte. Ltd. has a PE in India? Whether the services rendered constitute ‘Royalty’ Mastercard Asia Pacific Pte. Ltd.   Indian Banks and other financial institutions Services per Agreements  Payment processing service fees

MIPs constitute Fixed Place PE all material decisions relating to the operation and maintenance of the MIPs were made by MasterCard Asia Pacific even though MasterCard India had legal ownership of MIPs. MIPs provided several key elements of the payment authorization process, such as PIN processing, validation of card codes, address and name verification, fraud alerts, and data encryption. MIPs were therefore responsible for preliminary examination and verification of the transaction, failing which the transaction would not be authorized. This was held to be a significant activity, and not merely a preparatory or auxiliary one Mastercard network constituted Fixed Place PE MasterCard network to include MIPs and MasterCard’s application software, as well as transmission towers, leased lines, fibre optic cables, and transmission nodes (all owned by third parties).

Mastercard network constituted Fixed Place PE The AAR concluded that although several functions were performed outside India, significant activities relating to clearance and settlement took place in India. A sister company of MasterCard Asia Pacific was responsible for management and maintenance of the MasterCard Network, and since the application software used to access the MasterCard network was owned and controlled by the MasterCard Asia Pacific, the MasterCard network was at the disposal of MasterCard Asia Pacific. Bank of India constituted Fixed Place PE Employees of the Bank of India (the designated settlement bank in India) carried out their functions in accordance with the instructions given by the MasterCard Asia Pacific, such employees were under the control and supervision of MasterCard Asia Pacific, and hence the space occupied by them in the Bank of India was effectively at the disposal of MasterCard Asia Pacific.

Visiting employees constitute a Service PE Services performed by visiting employees of MasterCard, such as taking customer feedback, providing information about new products, and monitoring the efficiency of operations were an integral part of the transaction processing services provided by the MasterCard Asia Pacific to Indian customers. MasterCard India constitutes a dependent agent PE all agreements entered with Indian customers after the incorporation of MasterCard India were in fact routed through MasterCard India MasterCard India was habitually securing orders for MasterCard Asia Pacific, thereby resulting in the constitution of a dependent agent PE of MasterCard Asia Pacific in India

Dependent Agency PE “Notwithstanding the provisions of paragraphs 1 and 2, but subject to the provisions of paragraph 6, where a person —is acting in a contracting state on behalf of an enterprise and in doing so, habitually concludes contracts, or habitually plays the principal role leading to the conclusion of contracts that are routinely concluded without material modification by the enterprise, and these contracts are in the name of the enterprise, for the transfer of the ownership of, or for the granting of the right to use, property owned by that enterprise or that the enterprise has the right to use, or for the provision of services by that enterprise that enterprise shall be deemed to have a permanent establishment in that State in respect of any activities which that person undertakes for the enterprise, unless the activities of such person are limited to those mentioned in paragraph 4 which, if exercised through a fixed place of business, (other than a fixed place of business to which paragraph 4.1 would apply), would not make this fixed place of business a permanent establishment under the provisions of that paragraph.”

Dependent Agency PE For an agency PE to exist, all the following conditions must be met: a person acts in a Contracting State on behalf of an enterprise; in doing so, that person habitually concludes contracts, or habitually plays the principal role leading to the conclusion of contracts that are routinely concluded without material modification by the enterprise, and these contracts are either in the name of the enterprise or for the transfer of the ownership of, or for the granting of the right to use, property owned by that enterprise or that the enterprise has the right to use, or for the provision of services by that enterprise. It is worth noting that if the activities being carried out by an agent is of preparatory or auxiliary nature, it will be deemed to not constitute a permanent establishment.

Dependent Agency PE Notwithstanding the provisions of paragraphs 1 and 2, where a person—other than an agent of an independent status to whom paragraph 5 applies - is acting in a Contracting State on behalf of an enterprise of the other Contracting State, that enterprise shall be deemed to have a permanent establishment in the first-mentioned State, if : he has and habitually exercises in the first-mentioned State an authority to conclude on behalf of the enterprise, unless his activities are limited to those mentioned in paragraph 3 which, if exercised through a fixed place of business, would not make that fixed place of business a permanent establishment under the provisions of that paragraph ; he has no such authority but habitually maintains in the first-mentioned State a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the enterprise, and some additional activities conducted in the State on behalf of the enterprise have contributed to the sale of the goods or merchandise ; or he habitually secures orders in the first-mentioned State, wholly or almost wholly for the enterprise.

Independent Agent Paragraph 5 shall not apply where the person acting in a Contracting State on behalf of an enterprise of the other Contracting State carries on business in the first-mentioned State as an independent agent and acts for the enterprise in the ordinary course of that business. Where, however, a person acts exclusively or almost exclusively on behalf of one or more enterprises to which it is closely related, that person shall not be considered to be an independent agent within the meaning of this paragraph with respect to any such enterprise“ An agent will not constitute a PE of its principal if he is “an independent agent”, i.e., legally and economically, he is independent of the enterprise on whose behalf he acts, and When acting on behalf of the enterprise, he acts in the ordinary course of his business. This paragraph will not apply in certain cases, such as, where an employee acts on behalf of his/her employer or a partner acts on behalf of a partnership.

List of Exceptions “Notwithstanding the preceding provisions of this Article, the term “permanent establishment” shall be deemed not to include: the use of facilities solely for the purpose of storage, display or delivery of goods or merchandise belonging to the enterprise; the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage, display or delivery; c) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise;

List of Exceptions d) the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise or of collecting information, for the enterprise; e) the maintenance of a fixed place of business solely for the purpose of carrying on, for the enterprise, any other activity; f) the maintenance of a fixed place of business solely for any combination of activities mentioned in subparagraphs a) to e), provided that such activity or, in the case of subparagraph f), the overall activity of the fixed place of business , is of a preparatory or auxiliary character.”

GE Energy parts Inc v. ADIT (78 taxmann.com 2 (2017)
Facts: GE Energy was incorporated in the United States of America and was also a tax resident of the USA. It was a part of the GE Group, which makes equipments for the customers in India relating to oil and gas business, energy business, transportation business and aviation business. GE Energy had set up a Liaison Office (LO) in India. Permission had been granted by RBI for the purpose of undertaking purely liaison activities, i.e. to act as a communication channel between head office and its customers in India. Pursuant to a survey conducted at Liaison Office premises in India of GE Energy it was determined by the AO that the activities performed far exceeded what was sanctioned by RBI and such activities were of commercial and trading nature, which were exception to rule of liaison office. Marketing / Sales and negotiations with customers in India also took place at the LO. Employees of GE Energy were also present in India. GE Energy Parts Inc USA India GE (Liaison Office) The purpose of the liaison office was to act as a communication channel between head office and its customers in India.

Issues: Does a ‘Liaison Office’ constitute a Fixed place PE? What tests can be carried out to determine the nature of activities performed by a LO? Held: Liaison office is a fixed place from which business of GE is partly carried on in India and the activities carried on from such fixed place are not of preparatory or auxiliary character. Therefore it qualifies as a fixed place PE. Given the nature of activities done by GE India, which were of core nature and not merely preparatory or auxiliary, it is held that they clearly indicate its authority to conclude contracts on behalf of GE Inc, consequently, GE India constituted agency PE of GE Inc. GE Energy Parts Inc USA India GE (Liaison Office) The purpose of the liaison office was to act as a communication channel between head office and its customers in India.

Reasoning: Expatriates of GE Inc. were permanently using LO premises with specific chambers and rooms allotted to them. Employees of GE India were working under the direct control and supervision of expatriates who in turn were working for GE overseas entities. s indicated that GE India was fully involved in negotiating deal and was not merely acting as communication channel. Linkedin profiles of expatriates Expats were not of ‘independent status’

Liaison office Based on various judicial precedents, following are the activities which if carried out by a Liaison office, should be regarded as preparatory and auxiliary activities and should not constitute a permanent establishment in India: Services like data processing, account reconciliation, etc Basic operations carried out by a foreign enterprise before its business actually commences, like: Industry analysis; Market survey; Furnishing of information about the business of the foreign enterprise; Ensuring technical presentations to potential users; Development of market opportunities Providing a communications link between suppliers and customers; Collecting feedback from the prospective customer / consumers; Identifying Customers; Supply of information regarding customer requirements and specifications.

Service PE Service PE: (l) 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: activities of that nature continue within that State for a period or periods aggregating more than 90 days within any twelve-month period ; or the services are performed within that State for a related enterprise.

Service PE UN Model - Para 3(b)
Not included in O.E.C.D Model convention. Deals with furnishing of services including consultancy services Services are provided by enterprise/its employees/Personnel engaged by it Time Limit of 6 months within any 12 month period Services may be rendered to an associated enterprise of the service provider or a third party service recipient The period calculation is based on no. of. days Service PE vis-à-vis FTS under Article 12

ADIT v. E-funds IT Solutions Inc (86 taxmann.com 240 (2017)
Facts: e-Fund Corp. and e-fund IT Solutions Inc. were incorporated in USA. They entered into international transactions with their Indian subsidiary company, i.e. e-Fund India. In terms of agreement, e-Fund India performed back office operations in respect of ATM management, electronic payments, decision support and risk management services rendered by e-fund Corp and e-fund IT solutions. None of the customers are located in India. E-fund IT Solutions Inc E-fund Corp  USA India E-fund India (Subsidiary) Back office operations provided by E-fund India (ATM Management, electronic payments, decision support and risk management services)

Issues: Does the presence of a subsidiary results in a fixed place of business in a contracting state? Does the presence of employees of e-fund IT Solutions Inc / E- fund Corp in India give rise to a ‘Service PE’? Under what circumstances can ‘E-fund India’ would be considered to constitute an ‘Agency PE’? E-fund IT Solutions Inc E-fund Corp  USA India E-fund India (Subsidiary) Back office operations provided by E-fund India (ATM Management, electronic payments, decision support and risk management services)

Held: As the Indian subsidiary was rendering support services which in turn enabled the overseas entities to render services to their clients abroad and since no part of the main business and revenue earning activity was carried on through a fixed place of business in India and the Indian subsidiary only rendered back office support – outsourcing of work to India would not give rise to a fixed place PE. In so far as service PE is concerned, requirement of article 5(2)(1) of DTAA is that an enterprise must furnish services within India and that such services are furnished through employees or other personnel. Since no customers of E-funds Inc and E-funds Corp were located in India or had received any services in India, merely because auxiliary operations that facilitated such services were carried out in India, first ingredient contained in article 5(2)(1) was not satisfied and, thus, it was not necessary to advert to other ground namely, that other personnel would cover personnel employed by Indian company as well, and that US company through such personnel were furnishing services in India E-fund IT Solutions Inc E-fund Corp  USA India E-fund India (Subsidiary) Back office operations provided by E-fund India (ATM Management, electronic payments, decision support and risk management services)

Service PE – other issues
Stewardship related activity Stewardship-related functions refer to the activities of a foreign company that are undertaken with the primary objective of protecting its interests. These can include a wide range of activities, depending on the requirements of the Indian group company, for example: Monitoring the activities of the Indian group company in order to ensure its compliance with the group’s policies Conducting checks on quality of goods and services and reviewing business activities to ensure that the output meets the requisite requirements Guiding the Indian group company on conduct of its business activities As observed by the Indian judiciary (Morgan Stanley & Co.), the stewardship-related activities of a foreign company in India should not constitute its Service PE.

Secondment of employees Secondment means deputation of employees by a foreign company to its Indian group company, based on the latter’s requirements. Some of the key features of a secondment arrangement: Seconded employees are released from a foreign company for the period of the secondment Seconded employees work solely under the direction, control and supervision of the Indian company, and they only undertake activities for it. The Indian company is responsible for work undertaken by a seconded employee, including for the risks and rewards. The Indian company is also responsible for appraisals as well as payment of salary, social security contributions, bonuses, etc., to the seconded employees. If such payments are made by the foreign company, the Indian company has to reimburse the amount on a cost-to-cost basis. Seconded employees are governed by the same disciplinary policies that are applicable for the Indian company’s own employees. The Indian company is responsible for withholding tax on salary payments to seconded employees. Typically, under a secondment arrangement, an Indian company is the ‘economic employer’, while the foreign one continues to be such employees’ ‘legal employer’.

Secondment of employees The Indian judiciary observed in the case of Centrica India Offshore (P) Ltd. (Del HC) (2014) that seconded employees were entitled to participate in foreign companies’ retirement and social security plans as well as other benefits according to the applicable policies of these organisations, and their salaries should be paid by the foreign companies, which would claim this money from the assessees. The Court also observed that reimbursement of salaries to a foreign company was not a decisive factor. Subsequently, the Delhi High Court observed that such seconded employees render services to Indian companies on behalf of foreign companies. Their presence in India can lead to the constitution of a Service PE in the country. The Special Leave Petition filed by Centrica in relation to the decision of the Delhi HC was dismissed by the Supreme Court. Similarly, in the case of Morgan Stanley, the Supreme Court observed that the Service PE of a foreign company can be constituted in India as the agent retains lien over it.

Attribution of Profits
Profits will be attributed to the PE, in each country, as if it were distinct and separate enterprise, engaged in same or similar activities, under the same or similar conditions, dealing independently of the HO. Expenses incurred for earning profits of PE shall be allowed (including executive and general expenses). No deduction of expenses shall be allowed for payments by PE to HO or any other office. Similarly income shall not be considered. Reimbursements shall be allowed. Profits to be attributed to a PE shall be determined by the same method year by year unless there is good and sufficient reason to the contrary. Profits derived by a PE from the mere purchase of goods or merchandize for the enterprise should not be a part of its taxable income Income dealt with by other articles will be considered as per those articles. E.g. Interest, royalty, etc.

Attribution of Profits – Rule 10
In any case in which the [Assessing Officer] is of opinion that the actual amount of the income accruing or arising to any non-resident person whether directly or indirectly, through or from any business connection in India or through or from any property in India or through or from any asset or source of income in India or through or from any money lent at interest and brought into India in cash or in kind cannot be definitely ascertained, the amount of such income for the purposes of assessment to income-tax may be calculated :— at such percentage of the turnover so accruing or arising as the [Assessing Officer] may consider to be reasonable, or on any amount which bears the same proportion to the total profits and gains of the business of such person (such profits and gains being computed in accordance with the provisions of the Act), as the receipts so accruing or arising bear to the total receipts of the business, or Total Profits of the Business x Receipts of PE/Total Receipts of the Business in such other manner as the [Assessing Officer] may deem suitable.

Attribution of Profits – FAR method
Step One – hypothesizing the PE as a distinct and separate enterprise FAR Analysis: Functional and factual analysis Significant People Functions Attribution of Assets Tangible & Intangible Assets Attribution of Risks Attribution of ‘free capital’ Recognition of dealings Step Two – determining the profits of the hypothesized distinct and separate enterprise based upon a comparability analysis. The Supreme Court, in Morgan Stanley & Co. v DIT: 292 ITR 416, categorically stated that profits attributable to a PE shall have to be determined based on FAR analysis, i.e. functions performed, assets employed and risks assumed, based on arm's length principles

Evolving concept of Permanent Establishment
Recent developments… BEPS : Action 7 : Preventing the Artificial avoidance of Permanent Establishment Commissionaire arrangements Specific activity exemptions Splitting of contracts

Commissionaire arrangements
No PE will lead to: Sales being taxed in State A where the principal is resident. Commissionaire: an arrangement through which a person sells products in a given State in its own name but on behalf of a foreign enterprise that is the owner of these products Commissionaire being taxed on the difference between commission fee and its own expenses Changes were recommended by OECD to lower the threshold for creation of PE. The definition of PE was expanded to include ‘habitual conclusion of contracts or playing principle role leading to conclusion of contracts’ A (Principal) State A State B B (Commissionaire) Customers

Specific Activity Exemption
Article 5(4) of the OECD Model tax convention allowed an entity to undertake specific activities of preparatory or auxiliary nature without creating a PE in another state. Preparatory or auxiliary activities were generally considered non-value adding activities and hence had little profit allocation potential. Under the BEPS Action plan, the exemption for preparatory and auxiliary activity still remains, but is now seen in context of the relative importance of a particular in context of the business of the enterprise as a whole. An anti-fragmentation provision is also recommended to deny exemption of Article 5(4) in case the overall activity resulting from combination of activities carried on by two or more enterprises are not of preparatory or auxiliary nature.

Contract Splitting Article 5(3) of the OECD Model tax convention provided a duration threshold of 12 months in the case of Installation PE This exemption abused by way of splitting of contracts, each for a duration of less than 12 months or splitting of contracts between associated entities of a group. To tackle the same, anti abuse rules for the 12 months threshold was recommended, which provides that: For the sole purpose of determining whether the twelve month period referred to in paragraph 3 has been exceeded, where an enterprise of a Contracting State carries on activities in the other Contracting State at a place that constitutes a building site or construction or installation project and these activities are carried on during one or more periods of time that, in the aggregate, exceed 30 days without exceeding twelve months, and connected activities are carried on at the same building site or construction or installation project during different periods of time, each exceeding 30 days, by one or more enterprises closely related to the first-mentioned enterprise, These different periods of time shall be added to the period of time during which the first-mentioned enterprise has carried on activities at that building site or construction or installation project.

Indian CBDT thinking on ecommerce
India does not agree with the interpretation provided by OECD which states that a website does not in itself constitute a tangible property and therefore does not have a location which can qualify as a ‘place of business’. India holds the view that a website may constitute a permanent establishment where it leads to significant economic presence of an enterprise. In context of website hosting ,the OECD commentary states that an enterprise cannot be considered to have acquired a place of business merely by virtue of a hosting arrangement. India does not agree with this interpretation and holds the view that, depending on the facts, an enterprise can be considered to have acquired a place of business through a website on any equipment, if opening the website on that equipment includes downloading of automated software, such as cookies, which use that equipment to collect data from that equipment, process it in any manner or share it with the enterprise.

Implications of a PE Taxation of profits attributable at 40% (plus surcharge and cess as applicable) Attribution of profits Maintenance of Books of accounts and audit Filing of Returns in India; PAN, TAN etc. Withholding tax obligations for payer to PE Higher withholding at 40% (plus applicable surcharge and cess) Documentation Withholding tax obligations for PE Taxation of employees of the PE Indirect tax compliances

Emerging trends – Approach of the revenue authorities
Increased focus on foreign entities operating in India and challenging the operating structures adopted by them in assessing the existence of a permanent establishment in India. Intense factual investigation, surveys at premises and interviews of company officials are now not uncommon. Use of social media to gather information and also to assess the existence of a permanent establishment has also been adopted in several cases in the past few years: GE Energy Parts Inc vs. ADIT (47 taxmann.com 284) : Where in order to support its case that an Indian company constituted assessee's PE in India, revenue filed additional evidence in form of LinkedIn Profile containing details of employees of Indian company. Job descriptions, assignment letters, appraisal and assessment records are also being analysed by revenue authorities to determine the nature of activities being performed.

Thank you arvind@sduca.com

Permanent Establishment – Practical Issues

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