BVSS Seminar

1. Bhaumik Goda
15 April 2020
BGSS & Associates
Permanent Establishment

2. BGSS & Associates
Rationale
2
Threshold for taxing business profits of
foreign enterprise (FE) in Source State
Application of Non-Discrimination Article
to grant tax benefits available to residents
Compromise and harmonise taxing
jurisdiction between resident and source
state
Application of lower WHT rate if income is
not connected with PE
Source Pull
01 02
03 04

3. BGSS & Associates
Genesis of PE
3
Article 7(1)
“the profits of an enterprise of a Contacting State (US) shall be taxable only
in that State (US) unless the enterprise carries on business in the other
Contracting State (India) through a permanent establishment situated therein.
If the enterprise carries on business as aforesaid, the profits of the enterprise
may be taxed in the other State (India) but only so much of them as is
attributable to that permanent establishment.”

4. BGSS & Associates
Philosophy of PE
4
“the words “permanent establishment” postulate the existence of a
substantial element of an enduring or permanent nature of a foreign
enterprise in another county which can be attributed to a fixed place of
business in that country. It should be of such a nature that it would amount
to a virtual projection of the foreign enterprise of one country into the soil
of another country” - CIT v Visakhapatnam Port Trust (144 ITR 146)
(AP)
- “The concept marks the dividing line for business between merely trading
with a country and trading in that country” - Philip Baker
- “A “distinct” place of business could be understood as the location of
center of the business activity at a certain spot on the soil (or the seabed)
within the jurisdiction of the treaty” - Arvid A. Skaar

5. BGSS & Associates
Philosophy of PE
5
Installation PE if above
conditions are satisfied
Service PE if all the above
conditions are satisfied
Types of PE
Fixed Place PE Agency PE
Fixed Place
Carry on business
through fixed
place
Independent AgentDependent Agent
Agency PE if
- concludes
contracts
- maintains stocks
- secure orders
No agency
PE
Fixed place PE
if all conditions
are satisfied
Service PEInstallation PE
Furnishing of
services other than
those defined in
Article 12
Through employees
or other personnel
Continue for more
than XX days
Installation
Project
Continue for more
than XXX days

6. Fixed Place PE
6

7. BGSS & Associates
 For the purpose 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”
 Five Essential ingredients of Basic Rule PE
 There must be a place of the business. (place of business test)
 The place of business must be located at a certain area.(location test)
 The taxpayer must have a certain right to use the place of business
(right to use test)
 The use of the place of business must last for a certain period of time.
(permanence test)
 The activities performed through the place of business must be a
business activity as per treaty or domestic law (business activity test)
7
Basic Rule PE – Article 5(1)

8. BGSS & Associates
 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
 Irrelevant considerations:
 Ownership of property
 No formal legal right to use the place is required
 PE could exists even in illegally occupied area
 Examples:
 F1 Circuit
 Market place
 Ship
8
Place of business

9. BGSS & Associates
 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
 There must be commercial and geographical coherence
9
Location test

10. BGSS & Associates
 Examples of C & G:
 Trade fair
 Painter working for single client
 Consultant working in different office of same branch
10
Location test

11. BGSS & Associates
 A trade fair is conducted every year in India
 The fair is for a duration of about 1-2 weeks every year
 Mr X, a resident of US, participates in the fair every year and is regularly
visiting India from past 4 years
 Mr X displays his products in the fair in a mobile van, which he ships into
India every year for the fair
 The fair is conducted in different parts of India every year
 Determine whether Mr X constitutes a PE in India by participating in
trade fair
11
Case study – recurrent activity

12. BGSS & Associates
 Place should be at disposal of foreign enterprise for business activities of
Foreign Enterprise ( FE )
 FE should have ability to exercise some right or dominion or control over
place
 Place may be owned, rented or leased
 Legal right to use not be the sole determinant;
 Factual use or exercise of such right is more important
 Service provider’s office is “generally” not at disposal of service recipient
12
Disposal test

13. BGSS & Associates
 POD will depend on enterprise having the effective power to use that
location as well as the extent of the presence of the enterprise at that
location and activities that it performs
 POD satisfied if location is used for an extended period of time
13
Disposal test

14. BGSS & Associates
OECD illustrations :
Not at disposal
 Regular visits by Salesman to meet purchase director to take orders
 Road transporter using a delivery dock for a number of years for
delivering of goods purchased by client
 Foot print area of a satellite
 Roaming arrangement where home country operator transfers call to a
foreign network
 Home office of employee if used intermittent or incidental
 Consultant office
14
Disposal test

15. BGSS & Associates
OECD illustrations :
At disposal
 Employee of parent, is allowed to use office of subsidiary so that SubCo
complies with its obligation under contract with parent. Sufficiently long
period is essential
 Painter, for two years, spending 3 days a week in large office building of
client for painting purpose
 Home office if used by employee on continuous basis
15
Disposal test

16. BGSS & Associates
 IFA 2009 General report
“Generally, any service provider must be considered to have a legally
based access to the client’s facilities if the service contract presupposes
that he or she is going to render his / her services”
 Booz India Ruling
“Taxpayers rendering service usually do not require a place to be at their
constant disposal and therefore application of ‘disposal test’ is generally
more complex in such cases.
In some jurisdictions the ‘disposal test’ is satisfied by the mere fact
of using a place. In some other jurisdictions it is stressed that
something more is required than a mere fact of use of place.”
16
Disposal test

17. BGSS & Associates
 The definition of PE requires that the business of the foreign enterprise,
wholly or partly, ought to be carried out through the fixed place
 Place of business must 'serve' the business activity and not be 'subject
to' it. The use of the premises by an agent for the purpose of the
business of the principal may lead to the interpretation that such
premises are at the disposal of the principal and therefore constitute a
PE [DIT Vs Galileo International Inc [2009] 336 ITR 264 (Del HC)]
 Business which is carried on should be that of FE and not of ICO
 Bare leasing v/s wet leasing
17
Business activity test

18. BGSS & Associates
 No minimum threshold under Indian law
 Availability of a fixed place of business for a reasonable period should
result in compliance with this condition
 An isolated activity cannot lead to establishment of a fixed base PE as
the ingredients of regularity, continuity and repetitiveness are essentially
missing
 If a non-resident is carrying its activities through a place which is
exclusively available to its business in India then that place will be
deemed to be its fixed place PE even if the same is used for a day
18
Duration test

19. BGSS & Associates
 6 months is considered as sufficient threshold in various countries to
satisfy duration test
 Exception to general rule
 Recurring activity
 One-off short duration activities
 Intention plus actual conduct needs to be seen for determining duration
19
Duration test

20. BGSS & Associates
Working from home during the COVID-19 outbreak normally results from governmental
directives rather than from a requirement from an enterprise. Working from home during the
COVID-19 crisis does not have a sufficient degree of permanency, the worker has an office in
normal circumstances, and the enterprise has no access or control over the home office. In
order to qualify for a PE, an individual’s activities must contain a certain degree of permanency
and must not be temporary or transitory. Under the assumption that remote work is a
temporary circumstance and it does not become a permanent arrangement over time, working
from home during the pandemic should not create a PE for the company.
20
OECD guidance on Covid 19

21. BGSS & Associates
Formula One World Championship Ltd
21
 FOWC (UK company), FIA and FOAM
entered into certain agreements for exploiting
commercial rights arising out of F1 events
across globe
 FOWC entered into Race Promotion Contract
(RPC) with Jaypee Sports (Indian Company)
 Rights to host, stage and promote
Formula 1 Grand Prix event granted for
USD 40 mn
 FOWC also entered into Artworks License
agreement permitting Jaypee to use certain
marks and IP for USD 1 mn
FOWC
(UK Company)
Jaypee Sports
(Indian
Company)
Consideration
for hosting F1
event
Race
Promotion
contract
Hosts, stages &
Conduct F1
Racing Event
Promotes
Promoter
[2017] 80 taxmann.com 347 (SC)

22. BGSS & Associates
Facts
22
 Key aspects of RPC
 Racing Circuit to be constructed in form and manner approved by FIA and FOWC
 Jaypee Sports to ensure pit, paddock buildings and surrounding areas within
Racing Circuit and land are open to receive competitors, FOWC, its affiliates, etc.
at all times 14-days prior to race and 7-days after race (Access Period)
 Access to certain parts of Racing Circuit (not open to public) was authorised by
passes issued by FOWC
 During Access Period - Jaypee Sports/others not allowed to record sound/audio-
visual footage of event – FOWC can carry out these activities
 Jaypee Sports prohibited from displaying any advertisement if it prevents lawful
transmission of events – opinion of FOWC would be final

23. BGSS & Associates
Ruling of SC
23
Supreme Court Decision
 Joint reading of various agreements reveal transaction between parties involved and
clearly demonstrates control of FOWC (plus affiliates) over the entire event
 Jaypee Sports’ capacity to act was extremely restricted as FOWC had exclusive
access to Racing Circuit along with spaces where teams were located at all
material times
 Racing Circuit constituted fixed place where F1 racing event was conducted
 Racing Circuit was a virtual projection of FOWC on Indian soil
 FOWC had control over the fixed place
 Control over fixed place cannot be trivialised for the reason of its short duration –
duration of the agreement was 5 years which can be extended for another 5 years

24. BGSS & Associates
Ruling of SC
24
 Even though duration was less – FOWC had entire control during that period
 Relied on international jurisprudence to conclude that FOWC has a PE in India as
basic characteristics (like Stability, Productivity and Dependence) of PE were present

25. BGSS & Associates
MasterCard Asia Pacific Pte. Ltd
25
 Taxpayer (Singapore Company) was providing
transaction processing services relating to
authorization, clearing and settlement of card
transaction
 Income received by taxpayer
 Transaction processing fees
 Assessment fees (for building and
maintaining network governing transaction
processing)
 Miscellaneous fees (for providing other
ancillary services)
CIP
CIP
MasterCard Asia
Pacific Pte Ltd
(Taxpayer)
MISPL (Indian
subsidiary)
Customers
(Banks+FI)
Outside India
India
License Agreement
MasterCard Network (MCN)
Small computer
installed at customers’
premises
Initial level verification,
validation of transaction,
authorization, clearing &
settlement
2018] 94 taxmann.com 195
(AAR)

26. BGSS & Associates
Facts
26
 Certain activities were carried out in India through LO now transferred to Indian
subsidiary (MISPL)
 initial level verification, validation of transaction, authorisation, clearing and
settlement
 MCN in India includes following
 Master Card Interface Processor (MIP) – Owned by taxpayer and leased to
MISPL. This is installed by MISPL at premises of banks
 Application Software (Master connect and Master Card file express)– owned by
the taxpayer
 Transmission towers, leased lines, fibre optic cables, etc. – owned by third
parties and used for transmission

27. BGSS & Associates
Facts
27
 Global Card Network– Servers and related equipment's was located outside India
Issues before AAR
 Whether taxpayer had a fixed place PE in India as per India-Singapore tax treaty on
account of following ?
 MIP located at customer’s premises
 MasterCard Network
 Indian subsidiary
 Banker’s premises

28. BGSS & Associates
Ruling
28
Fixed Place PE - Through MIP and MCN
 Ownership factor (owning MIP) not relevant to determine existence of PE - if other
tests satisfied
 MIP passes the tests of permanency as they are placed at customers site
permanently – permanence does not imply that it has to be fixed to the ground
 Disposal Test
 MIP’s shown to be owned by Indian subsidiary – FAR profile of Indian subsidiary
only shows that it is performing support activity and not actual transaction
processing – means that authorisation process controlled by taxpayer

29. BGSS & Associates
Ruling
29
 Taxpayer indirectly controlling MIPs through licensing agreement and
mastercard rules
 No agreement between banks and Indian subsidiary for MIP’s
 All costs of maintenance of MIP charged back to taxpayer through cost plus
mechanism
 Sufficient to have control over MIP if it was ‘at the disposal’ of taxpayer
 Based on the above, even though MIP is owned by Indian subsidiary – under
effective control of taxpayer
 Role played by MIP is significant one in facilitating authorisation process – activities
cannot be considered as preparatory and auxiliary

30. BGSS & Associates
Ruling
30
 Fixed place not required to be involved in all three stages (authorisation, clearing and
settlement) – Involvement even in one stage can create PE, if the activity is significant
 Distinction of three stages would be important for attribution and not for determining
PE
Fixed Place PE - Through MISPL (i.e. Indian Subsidiary)
 Earlier LO was admitted as PE and 100 percent of its income was attributed to PE
 On transfer of all assets and employees by LO to MISPL, some functions and risks
related to transaction processing (earlier carried out by LO) were subsequently carried
out by MISPL though not shown in its FAR profile
 MISPL meets “disposal” test –MISPL was carrying on taxpayer’s work
 Facility, service, personnel and premises were at the disposal of taxpayer

31. BGSS & Associates
Ruling
31
Fixed Place PE - Through Banker’s Premises
 Significant activity of transaction process (>90% of actual movement of funds)
performed from banker’s premises
 Settlement was done in India as net position already known and banker posted entries
in India
 Banker had dedicated team and space to perform settlement function, as per direction
and on behalf of taxpayer
 Taxpayer was responsible for any error during settlement activity of banker

32. Production Resource Group
32
*TS-626-AAR-2017

33. BGSS & Associates
Facts of the case
33
 Applicant entered into a Service Agreement with the Organizing Committee of the
Commonwealth Games, India (OCCG), for a term commencing on 9 July 2010
and expiring on 30 October 2010 (around 114 days) for following work
 furnish lighting and searchlight services during the opening and closing ceremonies of
the Commonwealth Games in India in 2010, on a turnkey basis
 It required an ongoing presence available on call, to service, rectify or repair any
equipment supplied by the Applicant.
 Obtain all authorizations, permits and licenses, engaging personnel with the requisite
skills, ensuring their availability, procuring and/or supplying all necessary equipment for
its business, subcontracting, shipping and loading, insurance etc.
 For carrying on the above activities, the Applicant was provided with an office
space, as well as an onsite space for storing its tools and equipment inside the
stadium where the Games were held, under a lock
 While the services were rendered for the two days of the opening and closing
ceremonies, the Applicant’s employees and equipment were present in India for a
period of 66 days for preparatory, installation and dismantling of the equipment

34. BGSS & Associates
AAR Ruling
34
 The provision of a lockable space for storing its tools and equipment inside the stadium
implies that the Applicant had access to and control over this space to the exclusion of other
service providers engaged by the CW, including the CW itself
 This space was not merely for storage alone but, looking into the nature of the business, for
carrying out the business itself
 Given the expensive equipment, time lines, precision and the highly technical nature of the
work involved, it is inconceivable that the space provided to the Applicant, along with the
required security, would not be at the Applicant’s disposal, with the exclusive right to access
and control
 Provision of an empty workspace to the Applicant implies that such workspace was placed
at the disposal and under access and control of the Applicant
Primary factors

35. BGSS & Associates
AAR Ruling
35
 Subcontracting of some activities by the Applicant is indicative of the fact that the Applicant
had an address, an office from which it could call for and award subcontracts
 Without any premises under its control, hiring and housing key technical and other personnel
who would need regular and ongoing instructions during the entire period, was difficult
 The Applicant entered into various contracts for the purpose of its business in a contracting
state, and was employing technical and other manpower for use at its site. The site was,
thus, an extension of the foreign entity on Indian soil, as referred to in the case of
Vishakhapatnam Port Trust
 Undertaking comprehensive insurance of its equipment is also indicative of having a fixed
place of business, since that is the place where it kept, assembled and created the end
products required for rendering the services. No insurance company would insure any
equipment, structures etc., against any risk of fire, damage or theft, unless the place was
safe and in the exclusive custody and at the disposal of the customer, and in a well-defined
address or physical care. Goods are not ordinarily insured when lying at a third person’s
premises
Additional factors

36. BGSS & Associates
AAR Ruling
36
 It was mandatory for the Applicant to acquire all authorizations, permits and licenses. This
indicates that the Applicant had a definite place at its disposal, as it could, otherwise, not be
made liable for any default in the absence of the same
 The act of carrying out fabrication, maintenance and repair functions, or even operating the
same at the opening and closing ceremonies at/from a premises in someone else’s control
and custody, is impossible
 For a PE to emerge, the fixed place need not be enduring or permanent, in the sense that it
should be in its control forever. The context in which a business is undertaken is relevant
 Relying on F1 case, the duration for which the fixed place was at the disposal of the
Applicant was sufficient for the business required
Additional factors
Disposal test

37. BGSS & Associates
Comments
37
 F1 decision was based on peculiar fact pattern and cannot be applied as ratio
 Multiple agreements
 5 year tenure
 Interposing of Jaypee
 Modification of agreements
 Splitting up activity amongst AEs
 Demarcated place has been held to give rise to PE
 Seagate Singapore [322 ITR 650]
 Rolls Royce [19 SOT 42]
 Booz & Company [32 ITR 132]
 Decision blurs distinction between ‘executing a project’ and ‘carrying on of
business’
 Narrow reading of duration test and disposal test likely to give rise to PE risk for
service providers

38. BGSS & Associates38
Server as PE
Playbook
WOS
Data Server
Customer
Storage of Data
USA
INDIA
Asia PAC Data

39. BGSS & Associates
 Playbook is leading social networking website. It stores Indian user data in server owned by
WOS ICO. Following are terms of contract
 Data will be owned by Playbook
 ICO cannot provide access to data to any third party
 ICO will use all data security software as approved by Playbook
 Employees of Playbook will have remote access to server and have full access right
 Playbook can visit premises of ICO to check server security only on prior intimation
 Playbook has taken global insurance against security infringement
 ICO do not have access to data hosted on server
39
Server as PE
Evaluate whether server gives rise to fixed place PE of Playbook in India

40. Article 5(2)
40

41. BGSS & Associates
The term “permanent establishment” includes especially:
 A place of management
 A branch
 An Office
 A factory
 A workshop
 A mine, an oil or gas will, a quarry or any other place of extraction of
natural resources
Rule of Edjusdem Generis not applicable.
41
Article 5(2)

42. Service PE
42

43. BGSS & Associates
The term 'permanent establishment' also encompasses :
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:
(i) activities of that nature continue within that State for a period or
periods aggregating more than 90 days within any twelve-month
period ; or
(ii) the services are performed within that State for a related
enterprise [within the meaning of paragraph 1 of Article 9 (Associated
Enterprises)]
43
Service PE : India – US treaty

44. BGSS & Associates
 Refer, for example, India U.K. treaty
 Rendering of any services (other than FIS) within the other Contracting state
results in P.E. if services rendered for specified days viz
* To Associated Enterprises : For 30 days in any 12 month period
* To others : For 90 days in any 12 month period
 Services may be rendered by its employees or other personnel
44
Treaty variation

45. BGSS & Associates
Computation of days
45
 Clifford Chance, UK vs. DCIT (Mumbai ITAT) (76 TTJ 725)
“In our opinion multiple counting of the common days is to be avoided so that the
days when two or more partners were present in India, together, are to be counted
only once. Multiple counting would lead to absurd results. For example, if 20 partners
were present in India together for 20 days in one fiscal year, multiple counting would
result in 400 days. There cannot be more than 365 days in a year. Therefore, this
system of multiple counting leads to absurdity. Therefore, it should be avoided.”
 M.S.E.B. vs. DCIT (Mumbai ITAT) (83 TTJ 325)
“In our considered view, multiple counting of days would indeed go against the object
of art. 15(1)(a) of the India UK DTAA which is to provide criterion for substantial and
permanent presence in a Contracting State, as opposed to a transient and fleeting
one.”

46. BGSS & Associates
Same or connected projects
46
Impact of inclusion / exclusion of the words ‘same or connected projects’ in the analysis of
the Tax Treaties?
 Limit the coverage of the service PE definition
 Out of 21 countries, only 9 countries have the “same or connected project” clause [Botswana,
Iceland, Indonesia, Luxembourg, Namibia, Norway, Saudi Arabia, Thailand, UAE].
 OECD Model Commentary
 “The reference to an enterprise performing these services for the same project should be
interpreted from the perspective of the enterprise that provides the services.
Example: An enterprise may have two different projects (say tax advice & engineering advice) to
provide services to a single customer. Whilst these may be related to a single project of the
customer, one should not consider that the services are performed for the same project.”

47. BGSS & Associates
 Captive BPO in India to provide IT support, account reconciliation, research,
etc. (back office functions)
 USCo to send staff to India for stewardship activities including :
 Briefing ICo on standards of service
 Conducting training sessions for ICo staff
 Monitoring overall outsourcing operations for quality control, etc.
 Additionally, USCO deputed employees to assist ICo where
 USCo responsible for employees work
 Legal employment continued with USCo or employees continued to have lien
with USCo
 50% salary borne by USCo
 Appraisal of employees by FCO – may be, in consultation with ICo
47
Morgan Stanley ruling (292 ITR 416)
FACTS

48. BGSS & Associates
 No fixed place PE of USCo:
 Functional and factual analysis of activities relevant for PE determination
 Business of USCo not carried on through ICo
 In any case, activities are preparatory and auxiliary
 No Agency PE:
 No authority to conclude contracts on behalf of USCo;
 ICo in fact implemented contracts concluded outside India by USCo
 Service PE :
 Service PE can trigger only through presence of employees of FE in India
 Employees of subsidiary are not ‘personnel’ of parent
 Stewardship activities for monitoring of outsourcing activity and to protect interest
of USCo is outside scope of service PE
 Trigger of service PE for activities when employees of USCo deputed at ICo
request for expert service
48
SC ruling

49. BGSS & Associates
E- Funds
49
 US companies, (Taxpayers / US Cos) had an Indian
affiliate namely E Fund India (I Co)
 US Cos, engaged in the business of electronic payment,
ATM Management, decision support and risk
management services
 Taxpayers subcontracted the back office and data entry
support in respect of the three of the four main business
lines of US Cos
 Tax Authorities contended that Taxpayers had a PE in
India
 US Co allowed ICO use of its technology and
infrastructure free of cost
 US Co undertook marketing activities for ICO and
latter did not bear any significant risk in overall
services
 CIT(A) concluded that Service PE also exists for
ICO
Corp
CorpE-funds
Group
E-Fund India
US
India
Subcontract
* 86 taxmann.com 240

50. BGSS & Associates
Facts of the case
50
 For past years, pursuant to MAP, certain income
allocation was agreed to on “without prejudice” basis
 Tax Authority relied also on MAP resolution and held that
a PE exists and thus profits to be attributed for
subsequent financial years also
Corp
CorpE-funds
Group
E-Fund India
US
India
Subcontract

51. BGSS & Associates
Issues before SC
51
 Whether E-Funds India constituted a fixed place PE of E-Funds US and E-Funds
IT US in India, under the India – US Tax Treaty?
 Whether employees seconded by E-Funds US to E-Funds India constituted a
service PE of E-Funds US in India, under the India – US Tax Treaty?
 Whether E-Funds India constituted an agency PE of E-Funds US and E-Funds IT
US in India, under the India – US Tax Treaty?
 Whether admissions made in the course of the Mutual Agreement Procedure
under the India – US Tax Treaty could be used to justify the creation of PE?

52. BGSS & Associates
SC Ruling
52
 Relying on F1 decision SC held that PE can be constituted only if NR entity has fixed place
at its disposal
 A fixed place would be treated as being “at the disposal” of a non-resident enterprise when
that enterprise has right to use the said place and has control thereupon. Merely having
access to such a place, for the purposes of business, would not suffice
 Control should be of a considerable amount and usually control would be present where the
foreign entity can employ the place of business at its discretion
 Neither E-Funds US nor E-Funds IT US had a physical premise in India at its disposal nor
did they have control over use of E-Funds India’s premises for their business
 Irrelevant considerations
 close association between the entities or interactions or transactions
 assigning of a contract nor sub-contracting, nor provision of intangible software free of
cost
 even if the foreign entities had reduced their expenditure by transferring the business to
the Indian subsidiary, it would not by itself create a fixed place PE
Fixed place PE

53. BGSS & Associates
SC Ruling
53
 Article 5(2)(l) of the India – US Tax Treaty provides that a service PE would be constituted in
India where a US enterprise furnished services within India through employees or other
personnel
 The Revenue had argued that personnel engaged by E-Funds India for the provision of
support services to E-Funds US and E-Funds IT US were de facto working under the control
of the US entities, and as such, constituted a service PE of the US entities in India.
 On facts, the Court observed that none of the customers of E-Funds US or E-Funds IT US
were located in India, or receiving services in India
 As such, the primary requirement that services be furnished “within India” had not been
satisfied. On that basis, the Court did not go into the question of control over the personnel
engaged by E-Funds India
 E-Funds India merely undertook auxiliary operations that facilitated the provisioning of the
main service (i.e. ITES) by E-Funds US and E-Funds IT US abroad. As such it could not be
stated that a service PE had been created in India in terms of the India – US Tax Treaty
Service PE

54. BGSS & Associates
SC Ruling
54
 SC agreed with the view of the High Court that since the Revenue had not raised the
argument of agency PE before the Tribunal or the High Court, it could not be raised at the
level of the Supreme Court
 In any event, since the tests under Article 5(4) had not been satisfied with respect to E-
Funds India, no agency PE could be said to have been constituted
 MAP Settlement Agreement was time and case specific and could not be considered
precedent for subsequent years
 Placing reliance on Morgan Stanley – SC held that arm's length principle has been satisfied
in the present case, no further profits would be attributable even if there exists a PE in India
Agency PE
MAP
Profit attribution

55. BGSS & Associates
ABB FZ-LLC
55
 Taxpayer (UAE company) was providing specified
services as per the regional service agreement for
benefit of ABB legal entities in India, Middle East and
Africa
 Services were provided by taxpayer mainly from
outside of India over telephone, conference calls and
e-mails
 Three employees of taxpayer visited India for total of
25 days
 In absence of FTS Article in India-UAE tax treaty,
taxpayer claimed said amount as non-taxable in India
as per Article 22 of Tax Treaty (other income)
ABB FZ-LLC
(Taxpayer)
ABB Ltd
(Indian Group
Company)
3 employees
for 25 days
UAE
IndiaRegional
services
Payment
for
services
provided
2017] 83 taxmann.com 86
(Bangalore Tribunal)

56. BGSS & Associates
Facts
56
Positions adopted by Lower Authorities
Issues before Bangalore Tribunal
 Whether taxpayer has service PE in India even where presence in India is less
than threshold provided under India-UAE tax treaty?
Authorities Positions Adopted
AO Amount received from ABB Ltd taxable as FTS under ITA Or
taxable as royalty under ITA and tax treaty
DRP FTS + Royalty + Service PE

57. BGSS & Associates
Ruling
57
 Condition of having a fixed and permanent place of business is not a pre-requisite for having service
PE as both clauses are independent of each other
 Services can be rendered without physical presence of employees of taxpayer since services can
be provided via various virtual modes (like email, internet, video conference, remote access, etc.) in
present age of technology
 India-UAE tax treaty does not require stay of employees in India in excess of 9 months but rendering
of services or activities for a period of 9 months within any 12 month period was required to be met
 Once activities of taxpayer commenced in January 2010 it was not expected to complete nine months
before March 2010
 Completion of 9 months activities could only be conceived in a period of 12 months
 Service PE dependent on continuation of activity for same project or connected project in excess of 9
months within any 12 month period

58. BGSS & Associates
Comments
58
 India-UAE tax treaty wordings
 the furnishing of services including consultancy services by an enterprise of a
Contracting State through employees or other personnel in the other Contracting
State, provided that such activities continue for the same project or connected
project for a period or periods aggregating more than 9 months within any
twelve-month period

59. BGSS & Associates
Comments
59
 India-USA tax treaty wordings
 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
 Whether tax treaty is required to be read literally or liberally ?
 Clear condition of providing services in other contracting state – physical test
required to be satisfied
 Whether correct interpretation of law ?

60. Article 5(3) – Construction PE
60

61. BGSS & Associates
The term 'permanent establishment' also encompasses :
a) a building site, a construction, assembly or installation project or
supervisory activities in connection therewith, but only if such site, project
or activities last more than six months
61
Construction PE

62. BGSS & Associates
“A building site or construction or installation project constitutes a
permanent establishment only if it lasts more than twelve months”
 Permanence Test replaced by Duration test.
 Duration limit : OECD model :12 months,
: UN model : 6 months
62
Construction PE

63. BGSS & Associates
 Examples : construction of building, sewer systems, bridges or canals,
road, highway, excavation or dredging projects, laying pipelines etc
 Covers installation / assembly project lasting specified duration.(For
example, refinery, cement projects)
 Construction project, installation project, assembly project if exceeds
specified duration
 Could be contractor, sub-contractor
 Significance of Geographical and commercial coherence
63
Construction PE

64. BGSS & Associates
 If the part of the contract is subcontracted – Period spent by sub-
contractor also to be considered provided general contractor has site at
disposal- CIT Vs Visakhapatnam Port Trust [1983] 144 ITR 146 (Andhra
Pradesh HC)
 Twelve month test applies to each individual site or project – Sumitomo
Corpn Vs DCIT [2007] 110 TTJ 302 (Del ITAT); OECD (2010), Para 18
 A building site should be regarded as a single unit, even if it is based on
several contracts
64
Construction PE

65. BGSS & Associates
Generally, a construction site constitutes a PE if it lasts more than 12 months under the OECD
Model or six months under the UN Model. If the activities at a construction site are temporarily
discontinued, the temporary interruptions should be included in determining the duration of a
site. Even though the COVID-19 pandemic is an extraordinary circumstance, the time of
discontinuation of activities on a site due to the pandemic should be included in an assessment
of a PE.
65
OECD guidance on Covid 19

66. BGSS & Associates
Splitting-up of contract – Possible address
66
 BEPS recommendation
 Principal purpose test rule (MLI Art 7) –Treaty GAAR In light on contradiction –
High Court did not rely on OECD Commentary
 Anti-abuse provisions (MLI Art 14 r.w. Art 15) – Treaty SAAR
 Other means
 Domestic GAAR
 Judicial GAAR

67. BGSS & Associates
Article 14 (MLI) – Splitting – up of contracts
67
For the sole purpose of determining whether the period (or periods) referred to in a provision of a
Covered Tax Agreement that stipulates a period (or periods) of time after which specific projects
or activities shall constitute a permanent establishment has been exceeded :
 Where an enterprise of a Contracting Jurisdiction carries on activities in the other Contracting
Jurisdiction at a place that constitutes a building site, construction project, installation project
or other specific project identified in the relevant provision of the Covered Tax Agreement, or
carries on supervisory or consultancy activities in connection with such a place, in the case of
a provision of a Covered Tax Agreement that refers to such activities, and these activities are
carried on during one or more periods of time that,in the aggregate, exceed 30 days without
exceeding the period or periods referred to in the relevant provision of the Covered Tax
Agreement; and

68. BGSS & Associates
Article 14 (MLI) – Splitting – up of contracts
68
 Where connected activities are carried on in that other Contracting Jurisdiction at
(or, where the relevant provision of the Covered Tax Agreement applies to
supervisory or consultancy activities, in connection with) the same building site,
construction or installation project, or other place identified in the relevant provision
of the Covered Tax Agreement 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 aggregate period of time during
which the firstmentioned enterprise has carried on activities at that building site,
construction or installation project, or other place identified in the relevant provision of
the Covered Tax Agreement.

69. BGSS & Associates
Splitting – up of contracts – Key contours
69
Main Enterprise
 Building /construction/ installation, etc. projects
 Supervisory or consultancy activities – at project site?
 If excluded by Tax treaty?
 One or more periods of time
 Exceeds 30 days in aggregate – actual physical presence?
 Activities carried on v/s Project Duration
Closely Related Enterprise
 Connected Activities
 By Closely related enterprise –Article 15 (MLI)
 Each period of CRE >30days
 No overlap with period of main enterprise

70. BGSS & Associates
Connected activities - Indicative factors (OECD
commentary)
70
 Whether the contracts covering the different activities were concluded with the same
person or related persons
 Whether the conclusion of additional contracts with a person is a logical consequence
of a previous contract concluded with that person or related persons
 Whether the activities would have been covered by a single contract absent tax
planning considerations
 Whether the nature of the work involved under the different contracts is the same or
similar
 Whether the same employees are performing the activities under the different contracts

71. BGSS & Associates
Article15 (MLI) – Closely Related Enterprise
71
 .…..a person is closely related to an enterprise if, based on all the relevant facts and
circumstances, one has control of the other or both are under the control of the same
persons or enterprises. In any case, a person shall be considered to be closely related
to an enterprise if one possesses directly or indirectly more than 50 percent of the
beneficial interest in the other(or, in the case of a company, more than 50 percent of the
aggregate vote and value of the company’s shares or of the beneficial equity interest in
the company) or if another person possesses directly or indirectly more than 50 percent
of the beneficial interest (or, in the case of a company, more than 50 percent of the
aggregate vote and value of the company’s shares or of the beneficial equity interest in
the company) in the person and the enterprise.

72. BGSS & Associates
Article15 (MLI) – Closely Related Enterprise
72
Key Aspects
 Control
 50% + - deemed control
 Not necessarily AEs as per Section 92A(2) (26% shareholding, debt, etc.)

73. BGSS & Associates
India Treaty Impact (upon MLI being effective)
73
A. PPT – Minimum standard – will impact all Indian treaties with MLI signatory treaty
partners
B. Splitting-up Rule
Sr. No Article of MLI India's position Impact on India's CTA
1 Article 14 Adopted Can be amended –To the
extent treaty partner has not
reserved partly or entirely
2 Article 15 Adopted Applies only if any of the
Articles12,13 or 14 are
applicable

74. BGSS & Associates
India Treaty Impact – some examples
74
provision applicable
Splitting up of contracts related provision applicable
India -Netherlands India – Australia India - Ireland India – New Zealand
provision applicable
Splitting up of contracts related provision not applicable
India -France India – UK India - Singapore India – Japan India – Sweden
Can MLI Article 14 rule be still applied by invoking PPT /Domestic GAAR ?

75. Article 5(3)(b) – Supervisory PE
75

76. BGSS & Associates
 As per UN model, supervisory activities in connection with building site,
construction, installation or assembly project included if duration
exceeds 6 months
 If A Ltd. (of UK) supervises construction project of B Ltd (of USA); each
may have its own respective P.E
76
Supervisory PE

77. Article 5(4) – Preparatory & Auxiliary
77

78. BGSS & Associates
 Core activities v/s P&A activities
 Negative list includes
 Use of facility for purpose of storage, display or delivery of goods or
merchandise belonging to the enterprise
 Maintenance of stock of goods or merchandise belonging to the
enterprise for the purpose of storage, display or delivery
 Maintenance of stock of goods or merchandise for the purpose of
processing by another enterprise
 Maintenance of fixed place of business for the purpose of purchasing
goods or merchandise or collecting information for enterprise
 Maintenance of fixed place of business for the purpose of any other
activity of a P&A character
 Maintenance of fixed place of business for any activity specified in (a)
to (e) above provided overall activity if of P&A character
78
PE Exclusion

79. BGSS & Associates
 Service which prepares for core function or is supportive in nature
 Not preparatory, if answer is ‘yes’ to following:
 Does it match with general purpose of enterprise?
 Are services rendered also to third parties?
 Is activity an essential & significant part of the activity as a whole?
 Place available for core function coupled with preparatory activity results
in PE (eg. delivery point acting also as a sales outlet)
79
PE Exclusion

80. BGSS & Associates
 An activity that has a preparatory character is one that is carried on in
contemplation of the carrying on of what constitutes the essential and
significant part of the activity of the enterprise as a whole
 Since a preparatory activity precedes another activity, it will often be
carried on during a relatively short period, the duration of that period
being determined by the nature of the core activities of the enterprise
 This, however, will not always be the case as it is possible to carry on an
activity at a given place for a substantial period of time in preparation for
activities that take place somewhere else
 An activity that has an auxiliary character generally corresponds to an
activity that is carried on to support, without being part of, the essential
and significant part of the activity of the enterprise as a whole
 It is unlikely that an activity that requires a significant proportion of the
assets or employees of the enterprise could be considered as having an
auxiliary character
80
Indicia of P&A

81. BGSS & Associates
 Illustrations of non-preparatory activities:
 Warehouse with significant asset and function
 Managing other enterprises by establishment of management office
in case of ‘polycentric’ enterprises
 Delivery of spares and undertaking repairs
 Performance of after sales function
 Providing customised business plan instead of raw data information
 R&D coupled with manufacture
 Transportation & delivery of goods belonging to third party in case of
delivery pipelines
81
PE Exclusion

82. BGSS & Associates
Specific activity exemption [Article 13]
82
Article 13(1) of MI provides three alternates to countries
Option A
• Specific Activity exemption only if listed activities are PoA
Nature
Option B
• Automatic exemption to listed activities irrespective of
same being PoA in nature
Not to
choose
any option
• Provision as existing under CTAs will remain in force
 Both options (A and B) preserves the specific variant of listed activities under each
CTA
 Does not replace the list of exempt activities under each CTA (including treaties
modelled after Article 5(4) of OECD MC 2014/ UN MC 2011)
 Indian treaties have varied list of PE exclusion under each of its treaties

83. BGSS & Associates
India MLI final position on Article 13
83
 Under the MLI, India has opted for option A i.e. wherein PE exemption to listed activities
under Article 5(4) shall be subject to activities being PoA in nature
 For Anti-fragment rule, India is silent, suggesting that the said anti-fragment rule will be
applicable

84. Agency PE – Pre BEPS
84

85. BGSS & Associates
“Notwithstanding the provisions of paragraphs 1 and 2, where a person - other
than an agent of an independent status to whom paragraph 7 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 Contracting State in respect of any activities which that person
undertakes for the enterprise, if such a person:
(a) Has and habitually exercises in that State an authority to conclude
contracts in the name of 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, would not make this fixed place of business a permanent
establishment under the provisions of that paragraph; or
(b) 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.”
85
Text of Article 5(5)

86. BGSS & Associates
Factors relevant for legal and
economic independence
 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
86
Independent Agent exception
Agent
Is he legally
independent
Is he economically
independent
Is he acting in
ordinary course of
his business
Independent Agent as
per Article 5(6)
No DAPE
Are conditions in
Article 5(5)
satisfied
Dependent Agent
DAPE
Yes
Yes
Yes
Yes
No
No
No
No
Yes

87. BGSS & Associates
 Agent’ is a person employed to do any act for another or to represent
another in dealing with third parties (S. 182 of Contract Act)
87
Deemed PE : Person other than an IA (DAPE)
A person
other than an
agent of
Independent
status who
undertakes
any activity
for FE
Has & habitually exercises in India authority to conclude contracts*
Habitually maintains in India a stock of goods from which he regularly
delivers goods/merchandise or fills orders for FE
Habitually secures order in India wholly or almost wholly for FE/group
concerns
+
OR
Primary condition One of the following alternative conditions
OR

88. BGSS & Associates
 A person acts on behalf of an enterprise when that person involves the
enterprise to a particular extent in business activities in the State
 Example
 Agent acts for principal
 Partner acts for a partnership
 Director acts on behalf of company
 Employee acts for an employer
 A person cannot be said to be acting on behalf of an enterprise if
enterprise is not directly or indirectly affected by action performed by that
person
88
On behalf of

89. BGSS & Associates
 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
 Where approval of contract by foreign enterprise is a mere formality
 Irrelevant factor
 Contract signed outside India
 Excludes mere marketing which does not result in conclusion of contract
 Covers contract with standard term (insurance, credit card contracts)
89
Authority to conclude

90. BGSS & Associates
 ‘Habituality’ would indicate regularity or frequency with which agent
enters into contract on behalf of FE
 Purpose is to exclude sporadic contracts and bring to tax those activities
which involve FE significantly with activities of State S
90
Habituality

91. BGSS & Associates
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
a) 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 ;
(b) 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
(c) he habitually secures orders in the first-mentioned State, wholly or almost wholly for the
enterprise.
91
India – US treaty

92. BGSS & Associates
 US Protocol
 The agent frequently accepts orders for goods or merchandise on
behalf of the enterprise
 Substantially all the agent’s sales-related activities in the other
Contracting State consist of activities for the enterprise
 The agent habitually represents to the person offering to buy goods
or merchandise that acceptance of an order by the agent constitutes
the agreement of the enterprise to supply goods or merchandise
under the terms or conditions specified in the order
 The enterprise takes actions that give purchasers t basis for a
reasonable belief that such person has authority to bind the
enterprise
92
Securing of order

93. BGSS & Associates93
Agency PE test
Has he habitually
exercised
authority to
conclude
contracts?
Is the contract
concluded in the name
of NR principle
Indian Agent
Does it act ‘for or
on
behalf of NR
Principle?
Does he
have authority
to conclude
contract?
Yes
Yes
Yes
No
No
Yes
No
No Agency
PE
Agency PE
No

94. BGSS & Associates
"An enterprise of a Contracting State shall not be deemed to have a
permanent establishment in the other Contracting State merely because
it carries on business in that other State through a broker, general
commission agent or any other agent of an independent status, provided
that such persons are acting in the ordinary course of their business.
However, when the activities of such an agent are devoted wholly or
almost wholly on behalf of that enterprise, and conditions are made or
imposed between that enterprise and the agent in their commercial and
financial relations which differ from those which would have been made
between independent enterprises, he will not be considered an agent of
an independent status within the meaning of this paragraph."
94
Text of Article 5(7)

95. BGSS & Associates
 Impact on limitation of scale of business – say sole selling agent or
regional distributor
 An independent agent cannot be said to act in ordinary course of its
business as agent when it performs activities that are unrelated to that
agency business
 For determining ordinary course of business – whether all business or
only agency business should be considered ?
 Any Brightline test for ‘exclusively or almost exclusively’ ?
95
Independent agent

96. BGSS & Associates96
Independent agent test
Indian Agent
Yes
Are activities
wholly,
or almost wholly,
on
behalf of NR
principle?
No
Yes
Yes
Independent Agent
No
Dependent Agent
Is the Agent
acting
ordinary
course of its
business?
Is he legally
& economically
independent on
NR Principle
• 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
NR Principle terminates the service
agreement
• Agent bears the risk of loss from its
own
activities
• Number or principal
• Possesses special skills
No

97. BEPS amendment to Agency PE
97

98. BGSS & Associates98
Amendment in select treaty
Pre BEPS Post BEPS
Notwithstanding the
provisions of
paragraphs 1 and 2,
where a person —
other than an agent of
an independent status
to whom paragraph 6
applies — is acting on
behalf of an enterprise
Notwithstanding the provisions of paragraphs 1 and 2 but
subject to the provisions of paragraph 6, where person is
acting in a Contracting State on behalf of an enterprise and,
in doing so
…and has, and
habitually exercises, in
a Contracting State an
authority to conclude
contracts in the name
of the enterprise
...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
a) In the name of the enterprise, or
b) 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
c) For the provision of services by that enterprise

99. BGSS & Associates
India Treaty Impact – some examples
99
provision applicable
EAPE Rule in following treaties with India
Israel Japan Russia Norway
provision applicable
Treaties unamended
Australia UK Netherland Ireland Cyprus
Can MLI Article 14 rule be still applied by invoking PPT /Domestic GAAR ?
France New Zealand

100. BGSS & Associates
Constitution of Agency PE in amended treaty will revolve around interpretation of following
terms:
(a) Acting on behalf of
(b) Concludes contract
(c) Habitually plays the principal role leading to the conclusion of contract
(d) Contracts that are routinely concluded without material modification by the enterprise
100
EAPE Rule

101. BGSS & Associates
Facts
 Representatives of a pharmaceutical enterprise (Pharma Co) actively promote drugs
produced by that enterprise by contacting doctors that subsequently prescribe these drugs
Conclusion
 Marketing activity does not directly result into the conclusion of contracts between the
doctors and the enterprise so that the paragraph does not apply even though the sales of
these drugs may significantly increase as a result of that marketing activity
101
Pharma Company Example
Pharma Co Patients
Prescribes
medicine
Sales
representative

102. BGSS & Associates
Facts
 RCO, a company resident of state R, distributes
various products and services worldwide through
its websites.
 SCO, a company resident of State S, is a wholly-
owned subsidiary of RCO.
 SCO’s employees send emails, make telephone
calls to, or visit large organisations in order to
convince them to buy RCO’s products and
services and are therefore responsible for large
accounts in State S.
 SCO’s employees remuneration is partially based
on the revenues derived by RCO from the holders
of these account. These employees use their
relationship building skills to try to anticipate the
needs of these account holders and to convince
them to acquire the products and services offered
by RCO.
102
Online Distributor
R Co
S Co
Website
Customers
100%
Subsidiary
Marketing
Online conclusion
of contract

103. BGSS & Associates
Facts
 When one of these account holders is persuaded
by an employee of SCO to purchase the given
quantity of goods or services, the employees
indicates the price that will be payable for that
quantity, indicates that a contract must be
concluded online with RCO before the goods or
services can be provided by RCO and explains
the standard terms of RCO’s contracts, including
the fixed price structure used by RCO, which the
employee is not authorized to modify
 The account holder subsequently concludes that
contract online for the quantity discussed with
SCO’s employee and in accordance with the price
structure presented by that employee.
103
Online Distributor
R Co
S Co
Website
Customers
100%
Subsidiary
Marketing
Online conclusion
of contract

104. BGSS & Associates
Conclusion
 In this example, SCO’s employees play the
principal role leading to the conclusion of the
contract between the account holder and RCO
and such contracts are routinely concluded
without material modification by the enterprise
104
Online Distributor
R Co
S Co
Website
Customers
100%
Subsidiary
Marketing
Online conclusion
of contract

105. BGSS & Associates
Facts
 SCO provides marketing support service in India
 Role includes
 Marketing of new products introduced by RCO
 Sending email and organising seminar to promote
product
 Displaying product feature
 Explaining products through VRs and ARs based on
marketing material prepared by RCO
 Forwarding target information to RCO
 RCO negotiates price ,payment and delivery
terms
105
Sales support
R Co
S Co
Website
Customers
100%
Subsidiary
Marketing
Online conclusion
of contract
Evaluate satisfaction of EAPE Rule

106. BGSS & Associates
Facts
 SCO acts as LRD
 Based on order received from Customer it places
back to back order to RCO.
 RCO undertakes following responsibility
 Product warranty and guarantee
 After sales service through authorised centre
approved by RCO
 Online trouble shoot based on chat window on its
website
 Call support service from Call Centre located in
Philipines
106
LRD Model
R Co
S Co
Customers
100%
Subsidiary
Marketing
Back to back
purchase
Evaluate satisfaction of EAPE Rule

107. BGSS & Associates
Comments
 P2P sale does not result in Agency PE
 OECD Commentary
 Dassault Systems KK, In re 2010-TIOL-02-
ARA-IT
 Laird Technologies India (P) Ltd., In re (2010)
188 Taxman 304 (AAR)
 Dun & Bradstreet Espana S.A., In re (2005)
272 ITR 99 (AAR)
 Reuters Limited v. DCIT, TS-511-ITAT-
2015(Mum)
 Audi AG v. ADIT [2019] 111 taxmann.com 213
(Mumbai - Trib.)
107
LRD Model
R Co
S Co
Customers
100%
Subsidiary
Marketing
Back to back
purchase

108. BGSS & Associates
Comments
 India Reservation to OECD Commentary
“India does not agree with the interpretation
given in paragraph 96 because it considers that
distribution of goods owned by an enterprise, by
an associated enterprise or a closely connected
enterprise, particularly in a case where the risks
are not borne by such enterprise, such as the so
called ‘low risk distributor’, may give rise to a
permanent establishment of the enterprise,
whose goods are being sold”
108
LRD Model
R Co
S Co
Customers
100%
Subsidiary
Marketing
Back to back
purchase

109. BEPS amendment to Independent
Agent
109

110. BGSS & Associates110
Amendment in select treaty
Pre BEPS Post BEPS
An enterprise shall not be deemed to
have a permanent establishment in
a Contracting State merely because
it carries on business in that state
through a broker, general
commission agent or any other
agent of an independent status,
provided that such persons are
acting in the ordinary course of their
business
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.

111. BGSS & Associates
GE Energy Parts Inc
111
 GE Group is engaged in the business of
manufacturing and off shore sale of highly
sophisticated equipment
 GE Group supplies to worldwide customers
including Indian customers on a principal to
principal basis (title of goods passes to customers
outside India)
 GE Group entity has a liaison office (LO) in India to
act as communication channel only and not to carry
on any business activity
 GE Group also had a legal entity in India (GE India)
providing limited marketing support services to it
GE overseas
Companies
(Including US
Co1)
US Co 2
I Co LO
Support
Team
Performs sales
and marketing
activities from
LO
Overseas
India
Expatriates
(2019) 411 ITR 243 (Delhi)

112. BGSS & Associates
Facts
112
 Revenue conducted survey at LO – Key findings
 certain expats & employees together carried out marketing activities in India
from premises of LO and were also involved in negotiation of prices
 GE Group had 12,000 employees in India and over USD 1 Billion in exports
Delhi High Court –Decision
Whether LO constituted fixed place PE in India
 Three test to be satisfied for fixed place PE
 Enterprise must have a Fixed place of business – LO being at constant
disposal of expats constituted a fixed place of business

113. BGSS & Associates
Ruling
113
 The business of the enterprise must be wholly/partly carried on through the fixed
place – Business was carried out through the place available at disposal, hence
this test is satisfied
 The fixed place of business must not be solely for activities which have a
preparatory or auxiliary character – Based on the survey documents it was held
that activities carried on in India (such as negotiation of contracts, developing
market strategy, etc.) were core activities and cannot be considered as
preparatory and auxiliary
Whether GE India constituted DAPE in India
 Independent Agent Argument – Court held that entity can be considered ‘’devoted
wholly or almost wholly’’even if devoted to several related enterprise of the same
group

114. BGSS & Associates
Ruling
114
 Independent Agent Argument – Court held that entity can be considered “devoted
wholly or almost wholly” even if devoted to several related enterprise of the same
group
 OECD Commentary provides that merely participation in sales meeting would not
result in conclusion of contract – India has made a reservation to this observation
 In light on contradiction –High Court did not rely on OECD Commentary
 Relied on Ministry of Finance (Tax Office) vs Philip Morris (GmBH) – even in
absence of formal authority to conclude contract, participation in sales
meeting/negotiations in some case would lead to conclusion of contracts

115. BGSS & Associates
India – US treaty
115
 An enterprise of a Contracting State shall not be deemed to have a permanent
establishment in the other Contracting State merely because it carries on business
in that other State through a broker, general commission agent, or any other agent
of an independent status, provided that such persons are acting in the ordinary
course of their business. However, when the activities of such an agent are devoted
wholly or almost wholly on behalf of that enterprise and the transactions between
the agent and the enterprise are not made under arm's length conditions, he shall
not be considered an agent of independent status within the meaning of this
paragraph.

116. BGSS & Associates
 Landslide shift in legislative thinking of PE constitution backed with
changing judicial thinking
 Look and feel effect v/s black and white approach of law
 Revisit business model in light of changes as traditional approaches may
be outdated
 Stress on TP benchmarking and ALP margin
 Interplay with Equalisation levy, SEP etc – changing notions of PE
116
Concluding remarks

117. BGSS & Associates117
MUMBAI
604, Shitiratna Building, Panchwati Circle, C.G.
Road, Ahmedabad – 380 009
Email : saumya@bgss.co.in
Mobile No: +91 90999 27783
AHMEDABAD
605, Zee Nayak, M.G. Road, Vile Parle (East),
Mumbai – 400 057
Email : bhaumik@bgss.co.in
Mobile No: +91 98339 15583
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