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Income Tax : Read the full text of the Delhi ITAT order on Denso (Thailand) vs ACIT, discussing tax liability for technical services under Indi...
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Income Tax : Public Consultation on the proposal for amendment of Rules for Profit attribution to Permanent (PE) Establishment invited by CBDT....
Onus is heavily upon the revenue to establish that that assessee’s activity had crossed the threshold period of 12 months and hence constitutes PE in India in terms of Article 5(2)(g) so as to tax the receipts in India as per Article 7.
The concept of Permanent Establishment is one of the most important concepts in International Taxation. The existence of a Permanent Establishment or otherwise, would in most cases determine the exposure to domestic tax liability in the country of source.
The general principle of taxation is that a person, who is resident of a country, would normally be taxable on his/its global income. However, as a rule of exception to this general principle, a person may also be taxed in the country of source i.e., the place where the business of a person is carried on, though he may be a resident of another country.
Whether the Indian subsidiary of the assessee constitutes Permanent Establishment (PE) of the assessee in India on account of ‘signing, networking, planning and negotiation of offshore supply contracts in India’? If yes, whether any profit is attributable to the same, and the quantum thereof?
To create a PE, one has to pass the three tests of: permanency, a fixed place and disposal. All the three tests are satisfied and hence MIPs act as PE of the applicant. We hold that significant activities relating to clearance and settlement take place in India. Detailed analysis of Galileo judgement and application of the rationale held in Galileo case to the present case. Automatic equipment like server can also create PE and there is no requirement of human intervention. MasterCard network also creates a PE of the applicant in India.
It has been widely reported that multinational corporations resort to base erosion and profit sharing (BEPS) techniques to shift their profit to tax havens or nations with lower tax incidence.
India, amongst various countries, participated in the signing of the Multilateral Instrument (MLI) on 7 June 2017, to implement tax treaty related measures as a part of the various Base Erosion and Profit Shifting (BEPS) related Action Plans.
India is one of the first movers of such digital PE taxation and is setting up precedence in the International Taxation. It might be a rightful move for the Indian Government to capitalize on the consumer base and get a share of the profits swept by the non-resident players exploiting the huge consumption market base.
The Income Tax Act, in particular Section 90 thereof, does not speak of the concept of a PE. This is a creation only of the DTAA. By virtue of Article 7(1) of the DTAA, the business income of companies which are incorporated in the US will be taxable only in the US, unless it is found that they were PEs in India
In brief, the learned Judges of the Supreme Court held that FOWC carried on business in India for the duration of the race (and for two weeks before the race and a week thereafter). A PE must have three characteristics: stability, productivity and dependence.
