1. Introduction
The Supreme Court’s July 2025 ruling in Hyatt International Southwest Asia Ltd. v. ADDT (“Hyatt”) was heralded as a victory for substance-over-form, holding that the UAE-based franchisor Hyatt had a fixed-place permanent establishment (“PE”) in India. The Supreme Court (“SC”) focused on the economic reality of Hyatt’s control over two Indian hotels, finding that Hyatt’s sustained strategic oversight and frequent personnel visits meant the hotels were “at the disposal” of the foreign enterprise. But by treating expansive operational influence as equivalent to a right of use, the SC stretched traditional PE concepts.
This post explains the SC’s reasoning on the disposal test, continuity of presence and profit attribution, and then critiques two moves: (i) equating operational control with a right to the premises, and (ii) aggregating short, repeated visits into a continuous presence. It argues that while Hyatt rightly stresses substance-over-form, its aggregation approach and blurring of franchise oversight with direct business conduct create uncertainty for multinational franchisors and call for clearer doctrinal or legislative guidance.
2. Background and Litigation History
Hyatt International Southwest Asia Ltd, a UAE company, entered into twenty-year “Strategic Oversight Services Agreements” (“SOSA”) with two Indian hotel owners for hotels in Delhi and Mumbai. Under these contracts Hyatt, the franchisor, provided the global “Hyatt Operating Standards” and strategic direction for branding, marketing, staffing and operations, while an unrelated Indian company, Hyatt India Pvt. Ltd., ran the day-to-day hotel operations under a separate services agreement.
Hyatt-UAE’s role was to oversee and set policies. For example, it could identify and assist in appointing the general manager and key executives, dictate HR and procurement policies, control pricing and branding, manage the hotel’s bank accounts, and require that lenders agree to Hyatt’s security interests on the property. Hyatt-UAE performed all services from Dubai and was not obliged to send employees to India, though its contract expressly allowed occasional visits or secondment of staff to implement its standards. The Indian hotel owners paid Hyatt-UAE a strategic fee tied to room revenues, other hotel revenues and profits.
For Indian tax years 2009-10 through 2017-18 the tax authorities argued that Hyatt’s activities created a taxable PE in India under Article 5(1) of the 1992 India-UAE DTAA. The Assessing Officer, the ITAT and the Delhi High Court agreed. Hyatt challenged the finding of a fixed-place PE in the SC.
Hyatt’s defence was that it had no fixed office or exclusive premises in India; that its Dubai-based role was merely advisory and supervisory, not carrying on its own business in India; and that its employees’ visits were temporary since no one stayed longer than the service-PE threshold and thus could not create a PE. Hyatt also argued that, even if a PE existed, no profits could be taxed in India since the foreign company made global losses. The SC dismissed Hyatt’s appeal, holding that a fixed-place PE existed and that the SOSA income was taxable in India under Article 7.
3. Court’s Holdings: Disposal Test, Business Carrying on, and Aggregation
The SC reaffirmed the well-known PE criteria from Formula One and OECD commentary: a fixed place PE requires (i) a specific place at the disposal of the enterprise, and (ii) the business of that enterprise being carried on through that place, with attributes of stability, productivity and independence. Citing Formula One, the SC stressed that no formal lease or exclusive office is needed – a temporary or shared use suffices if business is conducted there. It emphasized substance over form, applying a “right of disposal” test contextually to the commercial realities.
Applying these principles, the SC found that the SOSA gave Hyatt a pervasive and enforceable right to carry on its business through the hotel premises. Hyatt could appoint and supervise the general manager, implement HR and procurement policies, set pricing and marketing, handle bank accounts, and send staff without needing the owner’s consent. These powers, over a 20-year period, meant Hyatt was actively participating in core hotel operations rather than merely giving advice. The SC held that the 20-year SOSA, combined with Hyatt’s continuous functional involvement, met the stability, productivity and dependence tests. Even though Hyatt India Pvt. Ltd. ran daily operations, the SC said the mere existence of a separate local operator did not undermine the PE, because legal form must yield to economic substance. In effect, the SC concluded that Hyatt-UAE “was running” the hotels from Dubai, so its business was carried on through those premises.
On the question of continuity, the SC took an expansive view of presence. Although no single Hyatt executive stayed in India beyond 183 days (the service-PE threshold under the treaty), the SC found that repeated visits by multiple employees constituted an unbroken pattern of operations. Relying on Article 5(2)(i), the SC held that continuity should be judged in the aggregate. Since Hyatt’s personnel visited India frequently over the years to oversee operations, their combined presence showed continuity of Hyatt’s business activities. Thus, even intermittent visits collectively made the Indian hotels an ongoing focus of Hyatt’s operations. Once continuity was established, the fact that any individual’s stay was brief became “immaterial.”
Finally, on profit attribution, the SC noted that a PE’s profits are independently assessed. Hyatt’s claim of global losses could not exempt the Indian PE from taxation. Following OECD concepts, the SC agreed that Indian profits should be attributed by examining the functions, assets and risks of the Indian activity. However, profit attribution was not in issue before the SC, since the Delhi High Court had already referred that question to a larger bench, which answered it in favor of the revenue. The SC simply affirmed that the SOSA fees were attributable to the fixed PE and thus taxable in India, regardless of the foreign company’s overall losses.
4.Critical Analysis
While affirming substance-over-form, two interrelated themes of critique emerge from the analysis:
Firstly, is and should there be a difference between operational control and right of disposal? The SC equated Hyatt’s control over hotel policies and staff with having the premises “at its disposal.” In doing so it blurred two distinct concepts. Article 5(1) requires the “place of business” to be at the enterprise’s disposal and its business carried on there. In practice the disposal test means the enterprise has some right to use or control a site. Here, the SC pointed to Hyatt’s influence over hotel affairs as effectively making the hotel its place. But control over the business activities does not automatically imply control over the physical premises. Hyatt-UAE owned no part of the hotels and had no written lease or defined area. Its contract simply required the Indian owner to follow Hyatt’s standards. According to the SC’s reasoning, that alone made the hotels available to Hyatt.
In other contexts, presence at a customer’s location without formal rights has not been treated as a disposal. The OECD Commentary emphasizes that mere access or surveillance by the enterprise at a customer’s site, without a right to use that site for its own business, is not enough. In other words, presence is evidence of potential use, but the law asks whether the enterprise had actual entitlement to the premises. By contrast, the SC effectively held that Hyatt’s extensive operational influence entitled it to use the hotel as an instrument of its business. In effect, the SC collapsed “control over the enterprise’s business” into “control over the premises.”
Moreover, the SC did not carefully distinguish whose business was being carried on. Strictly speaking, Article 5(1) requires that the business carried on at the place be the business of the non-resident enterprise itself. Hyatt-UAE’s business was licensing a hotel format and providing strategic services. The Indian hotels’ day-to-day business remained with the Indian owners and operator. By treating the hotel operations as Hyatt’s business, the SC conflated the franchisor’s oversight activities (which resemble stewardship or brand licensing) with carrying on Hyatt’s own enterprise in India. For example, hiring a general manager at the owner’s request, even if done “on behalf” of Hyatt, primarily benefits the owner and the brand. Under precedents like DIT v. Morgan Stanley supervisory activities of this kind are not regarded as the foreign enterprise providing actual services or using a place to carry on its business. Yet in Hyatt, the Court treated them as establishing a “nexus” between Hyatt’s enterprise and the hotel premises.
In short, the judgment blurs the line between influencing how a local affiliate or franchisee runs its business and the foreign company itself conducting business on that site. By deeming the hotel premises “at Hyatt’s disposal,” the SC relieved itself from requiring any formal allocation of the premises. This approach effectively ignores the classic idea of a branch or office, and instead taxes any situation where the foreign company’s standards are implemented locally. The SC also showed little concern for piercing the corporate veil. It treated Hyatt-UAE and the Indian company as a single economic actor. But tax treaties usually respect separate legal entities unless there is clear evidence of treaty abuse. Absent that, simply outsourcing operations to an affiliate should not automatically combine the two businesses. The SC’s broad reading raises concern that many normal franchise or management arrangements could now be viewed as giving the franchisor a de facto office.
Secondly, the Court’s stance on repeated visits lacks a clear rule. By looking at the aggregate of multiple short visits over years, the SC moved beyond the strict language of Article 5(1). Ordinarily a fixed PE requires a place in continuous use by the enterprise. Here, there was no single fixed site (apart from the hotels themselves) and no one person continuously present. To overcome this, the SC effectively borrowed the service-PE notion of “aggregate presence.” The reasoning was that Article 5(2)(i) allows employees furnishing services for more than 183 days to create a PE; by analogy, multiple employees furnishing managerial services on short visits add up to continuity of presence. This “aggregation principle” is novel in the fixed-PE context and not explicitly provided in the treaty.
The practical implications are unclear. If any number of brief, recurring trips can be combined into one continuous PE, the line between temporary business trips and a lasting PE becomes blurred. How many visits or how much combined time triggers “continuity”? The SC offers no bright-line measure. It said once continuity is found, intermittent gaps by individuals are immaterial, but it did not say what pattern creates continuity in the first place. Was it the unbroken 20-year contract itself? Or Hyatt’s evidencing of enforcement over that span? Could long pauses break continuity? MNC’s have no clear guidance from this.
The lack of guidance on the aggregation approach also raises treaty interpretation issues. Article 5(2)(i) and (ii) set service-PE thresholds on an individual basis (e.g. 183 days by one person). Applying those concepts to all employees of a foreign firm extends Article 5 well beyond its text. The OECD Commentary shows examples of single persons and projects, not sweeping all employees. By accepting aggregate presence, the SC in effect transforms any recurring collaborative activity into a potential fixed place. This could have been viewed as creation of a supervisory or “service” PE, but the SC treated it as part of the fixed-place analysis.
Another uncertainty relates to the multiple locations. Hyatt’s agreements covered two hotels in different cities. The SC apparently treated them jointly, implicitly viewing both as part of one PE. Yet typical PE doctrine and OECD treat each distinct place separately. It is unclear whether, under the SC’s logic, two unconnected hotel premises owned by different companies can together constitute a single “fixed place.” This raises the prospect that companies operating in multiple locations might be unevenly exposed. Are each hotels separate PEs, or can control be aggregated across them? The SC sheds no light on that question. In the absence of clear rules, businesses must assume that any site where they exercise substantial control may independently trigger a PE determination.
5.Conclusion
Hyatt significantly broadens the scope of “fixed place PE” under the India-UAE treaty by collapsing the distinction between control over business operations and control over physical premises, and by importing an aggregation principle to establish continuity of presence. While grounded in a substance-over-form approach, the ruling stretches Article 5 beyond its conventional contours, potentially conflating franchisor oversight with the conduct of core business in India. The lack of clear thresholds for “disposal” and “continuity” leaves considerable uncertainty for multinational enterprises operating under franchise, management, or strategic services models. As a result, it raises wider concerns about predictability and treaty consistency in cross-border taxation.
For companies, the message is clear: substance matters above all. Any substantive, recurrent involvement in an Indian business carries PE risk. But the absence of precise rules means uncertainty looms large. What quantum of visits now equals “continuous” presence? How exactly should one parse shared premises across affiliates? The SC offered little prescription, leaving businesses and taxpayers to navigate by the judgment’s broad principles. As Indian courts and tax authorities apply Hyatt, additional clarifications or even legislative guidance may be needed. For now, however, multinationals must assume a more aggressive Indian tax posture. The era when foreign enterprises could rely on purely formal separations to avoid Indian tax has ended. The Hyatt case shows that in India, economic control and sustained engagement by foreign firms will drive PE determinations, and that companies must adapt their contracts, operations and compliance practices accordingly.
References:
The Hyatt Judgment and the New PE Paradigm: Form vs. Function in Indian Tax Law
https://indiankanoon.org/doc/124906522
https://indiankanoon.org/doc/164637258/
https://legalblogs.wolterskluwer.com/international-tax-law-blog/permanent-establishment-welcome-to-the-hotel-california/
https://indiankanoon.org/doc/584977/
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