AAR on taxability of income from execution of contract in India by German company, having no PE in India

A recent ruling of the Authority for Advance Rulings (AAR) [2009-TIOL-23-ARA-IT] in the case of Pintsch Bamag (Taxpayer). The issue before the AAR was whether the sub-contractor’s workplace and work duration should be considered in determining the existence of a permanent establishment (PE) of the Taxpayer, under the India-Germany Tax Treaty (Tax Treaty).

Considering the facts of the case, the AAR observed that the work carried out by the sub-contractor was independent of any control by the Taxpayer. Thus, the time spent by the sub­contractor should not be considered in determining the time threshold under the Tax Treaty. Since the time proposed to be spent by the Taxpayer was within the time threshold specified under the Tax Treaty for creating a PE, the AAR held that the Taxpayer’s activities will not constitute a PE under the Tax Treaty and, thus, it was not taxable in India.

Facts of the case

• The Taxpayer, a company incorporated in Germany, was awarded a contract by an Indian customer to design, fabricate, install and maintain navigational equipment for a shipping channel.

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