Post by NayakPai on Jan 6, 2009 22:46:54 GMT 4
India: Ruling on constitution of a fixed place permanent establishment
The Delhi income tax appellate tribunal in the case of Fugro Engineers BV v ACIT (2008-TIOL-502-ITAT-DEL) recently examined whether a permanent establishment (PE) would be constituted where the activities of foreign enterprise were carried on in India for less than 183 days. Fugro Engineers BV was a company incorporated in the Netherlands which was engaged in the business of providing geo-technical services and undertaking geo-technical and geo-physical investigation at drilling locations of its customers. It entered into three independent contracts with three different Indian companies for undertaking investigation activities and for provision of services.
The duration of the activities performed under such contracts independently and cumulatively was less than 183 days. The company was a tax resident of Netherlands under article 4 of the double taxation avoidance agreement between India and Netherlands and was eligible for the treaty benefits. The issue before the tribunal was whether the activities of the taxpayer would constitute a PE under article 5 of the treaty.
The tribunal observed that, in accordance with the contracts, work was carried on by the taxpayer on the Indian soil and territorial waters onboard an Indian ship. Further these activities were done on a continuing basis and not as an isolated one. A fixed place of business was constituted in the form of the ship and work sites, since the taxpayer completed its work out of these places of business.
The tribunal noted that no length of time is prescribed in article 5(1) of the treaty and that the place of business was available to the taxpayer for a period of time in which its independent activities could be completed. Therefore it concluded by holding that the activities of the taxpayer would constitute a "fixed place of business" for the taxpayer and therefore it had a PE in India under article 5(1) of the treaty.
Rajendra Nayak (rajendra.nayak@in.ey.com) & Ganesh Pai (ganesh.pai@in.ey.com)
The Delhi income tax appellate tribunal in the case of Fugro Engineers BV v ACIT (2008-TIOL-502-ITAT-DEL) recently examined whether a permanent establishment (PE) would be constituted where the activities of foreign enterprise were carried on in India for less than 183 days. Fugro Engineers BV was a company incorporated in the Netherlands which was engaged in the business of providing geo-technical services and undertaking geo-technical and geo-physical investigation at drilling locations of its customers. It entered into three independent contracts with three different Indian companies for undertaking investigation activities and for provision of services.
The duration of the activities performed under such contracts independently and cumulatively was less than 183 days. The company was a tax resident of Netherlands under article 4 of the double taxation avoidance agreement between India and Netherlands and was eligible for the treaty benefits. The issue before the tribunal was whether the activities of the taxpayer would constitute a PE under article 5 of the treaty.
The tribunal observed that, in accordance with the contracts, work was carried on by the taxpayer on the Indian soil and territorial waters onboard an Indian ship. Further these activities were done on a continuing basis and not as an isolated one. A fixed place of business was constituted in the form of the ship and work sites, since the taxpayer completed its work out of these places of business.
The tribunal noted that no length of time is prescribed in article 5(1) of the treaty and that the place of business was available to the taxpayer for a period of time in which its independent activities could be completed. Therefore it concluded by holding that the activities of the taxpayer would constitute a "fixed place of business" for the taxpayer and therefore it had a PE in India under article 5(1) of the treaty.
Rajendra Nayak (rajendra.nayak@in.ey.com) & Ganesh Pai (ganesh.pai@in.ey.com)