For UK businesses entering the Indian market, understanding the Permanent Establishment (PE) concept under the India-UK Double Taxation Avoidance Agreement (DTAA) is key to managing tax obligations. PE establishes the basis on which India can tax profits earned by the UK company in India. The following questions cover essential aspects of PE determination under the treaty.
What constitutes a Permanent Establishment (PE) under the India-UK Treaty?
A PE is a fixed place of business through which a company conducts part or all of its business in India. Common examples include offices, factories, and branches. If a UK company maintains a physical presence in India, it may trigger a PE, leading to tax obligations on the profits derived from Indian operations.
Does a UK company operating through a branch in India create a PE?
Yes, under Article 5(2)(b) of the treaty, a branch is explicitly mentioned as a form of PE. If a UK company operates through a branch in India, it will create a PE, and the income attributable to the branch will be subject to Indian taxes.
Will a short-term construction project by a UK company in India create a PE?
A construction, installation, or assembly project creates a PE only if it lasts for more than six months in India, as per Article 5(2)(j). If the project’s duration is less than six months, no PE will be established.
Can service provision by a UK company in India lead to a PE?
Yes, a UK company furnishing services in India through employees or other personnel will create a PE if the services last for more than 90 days in any 12-month period, as per Article 5(2)(k)(i). This means the UK company will be taxed on the income generated from these services.
Unsure if your service arrangement creates a PE? Contact Sorting Tax Advisory for expert advice.
Does a UK company storing goods in India constitute a PE?
No, simply using facilities for the purpose of storage, display, or delivery of goods does not constitute a PE, as per Article 5(3)(a). However, if the UK company engages in further business activities through those facilities, a PE may be triggered.
Can an agent in India create a PE for a UK company?
Yes, if a dependent agent in India has the authority to negotiate or conclude contracts on behalf of the UK company, it will create a PE under Article 5(4)(a). Independent agents acting in the ordinary course of business, however, will not create a PE unless they are acting wholly for the UK company.
Need to review your agent agreements? Contact Sorting Tax Advisory for personalized assistance.
Will a UK company sub-contracting work in India create a PE?
Sub-contracting work to an Indian company does not, in itself, create a PE. However, if the UK company maintains personnel in India for supervisory activities exceeding six months or 90 days (depending on the nature of the project), a PE could arise under Article 5(2)(j) or 5(2)(k)(i).
Can preparatory or auxiliary activities in India lead to a PE?
No, preparatory or auxiliary activities, such as advertising or collecting information, do not lead to a PE under Article 5(3)(e), provided they are the only activities conducted. These activities are seen as incidental to the business and are exempt from creating a PE.
Does the presence of a UK subsidiary in India automatically create a PE for the UK parent company?
No, the fact that a UK company controls or is controlled by a company in India does not, by itself, constitute a PE under Article 5(6). A PE will only be created if the subsidiary acts as a dependent agent or undertakes business activities on behalf of the parent.
Considering an Indian subsidiary? Contact Sorting Tax Advisory to explore your tax obligations.
Can supervisory activities of a UK company in India result in a PE?
Yes, supervisory activities related to a building or installation project create a PE if they last for more than six months, as per Article 5(2)(j). If the supervision is incidental to the sale of equipment and exceeds 10% of the sale price, a PE is also triggered.
Conclusion:
Navigating the concept of PE under the India-UK treaty is crucial for UK companies doing business in India. A PE can arise through various means—physical presence, service provision, agent activities, or construction projects. It’s important to evaluate each aspect of your business model to determine potential tax liabilities in India.
For detailed tax planning and PE analysis, reach out to Sorting Tax Advisory.
Check out our Other Article on Permanent Establishment :- https://sortingtax.com/top-10-questions…germany-tax-treaty/
