[Opinion] Decode the Concept of Service Permanent Establishment in India

CA Pawan Kumar – [2024] 159 taxmann.com 107 (Article)

The significance of Permanent Establishment (“PE”) lies in the fact that if an enterprise does not have a PE, it can only be taxed in the country where it is a resident. However, if the enterprise operates through a PE, the profits attributable to it would also be subject to taxation in the country where the PE exists.

The primary purpose of the PE concept is to determine a country’s right to tax the profits of an enterprise from another country. Although the onus is on the Tax department to establish the existence of a Permanent Establishment in the country, it is preferable to analyze your tax position independently rather than relying solely on the department’s determination.

This article will help you how we can determine the position of Service PE in India.

Before Going in depth Analysis Let’s putting here Paragraph of Service PE from different treaties.

India and Singapore Treaties

Article 5 paragraph 6

An enterprise shall be deemed to have a permanent establishment in a contracting state if it furnishes services other than services as defined in article 12. within a contracting state through employees or other personnel, but only if:

• Activities of that nature continue within that contracting state for a period of periods aggregating more than 90 days in any fiscal year or
• Activities are performed for related enterprises (within the meaning of article 9 of this agreement) for a period or periods aggregating more than 30 days in any fiscal year.

India and Australia Treaties

An enterprise Shall be deemed to have a permanent establishment in one of the contracting states and to carry on business through that PE

(c) if furnish services, including managerial Services and those mentioned in Sub- paragraphs (3)(h) to (k) of Article 12 but not those service s in respect of which payments or credits that are royalties as defined in article 12 are made , within one of the contracting states through employees or other Personal, But if those services are furnished within that states

For a period or periods aggregating to more than 90 days within any 12- month period; or

For another enterprise, if both enterprises are within either of the relationships described in sub-paragraphs(1) (a)and (b) of Article 9.

India and US Treaties

The term “permanent establishment” includes especially.

(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:

(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)].

: Contracting here mean “Country India”

Article 9 Associated Enterprises

Article 12 Royalties and Fees for Included Services

So, Service PE constituted in India where any enterprise:

• Provide Services by foreign enterprise Other than fees for technical services.
• Through Employee arrangement like Secondment of Employees, (However Stewardship and deputation of employee arrangement does not constitute Service PE – Refer below case laws) or
• Through other personnel
• For a specified period as per treaty agreement

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