Global Employer Services News April 2022

PE case tribunal finding of no fixed place of business

An interesting PE case in the international tax news - recent Delhi tribunal decision finds no fixed place permanent establishment.

The recent Delhi tribunal decision (March 9 decision in FCC Co. Ltd. vACIT) has been handed down in favour of the tax payer finding no fixed place PE of the employer in India. This case was essentially relating to engineers from a Japanese multinational corporation visiting the premises of an Indian affiliate to provide technical support in the factory of the India affiliate. 

The tribunal held that merely providing access to the India facility would not amount to the place being at the disposal of the taxpayer. Though the tax payer had access to the India factory premises, it was for the limited purposes of rendering agreed services without any rights to use or control over the premises.

The tribunal also held that the Japanese company was not conducting a business in India. The tax authorities had sought to argue that the title to parts manufactured by the Japanese company and sold to the India affiliate transferred in India and therefore there was a PE. The tribunal disagreed with this.

Finally, there was examination of whether the Japanese company was carrying on a supervisory activity in connecting with an installation project in India for more than 6 months which under the terms of the Japan/India treaty would also have created a PE.

This case is a good example of the issues that business travellers can cause multinationals even where no PE is expected. It is a cautionary story of how such activities need to be carefully monitored to be sure no PE is created and to be sure sufficient documentation is maintained to defend this in the event of challenge.

Jiger Saiya