Changing Contours of Permanent Establishment Under Indian Law: Recent Trends Compel Revisit to Business Models

Abstract

Under the existing international tax treaty framework, a Non-Resident (NR) carrying out business in India becomes taxable if there exists a Permanent Establishment (PE) of that NR in India. Under the double tax treaties executed by India, there exist various classes of PE (such as agency PE, construction PE, service PE, etc.) besides an enlistment of certain illustrative situations wherein a PE is considered to exist or otherwise. In practice, however, whether a PE exists or not is largely a fact-driven exercise that requires an appreciation of a large number of variables.

This paper seeks to examine certain recent developments in India in which the question of the existence of PE and related aspects have been considered. An attempt is made to highlight the crucial changes in the spectrum of appreciation employed by the Indian tax-authorities and courts which compel NRs carrying out operations in India to revisit their business-models from a PE perspective.

Keywords: Permanent Establishment, Income Tax, Double Tax Treaties, India

JEL Classification: H25, K34