Permanent Establishment Though Subsidiary Of A Foreign Company

Background:

As per most of the Double Taxation Avoidance Agreements (hereinafter referred as 'DTAA') signed by India, the concept of the term 'permanent establishment' (hereinafter referred as 'PE') is recognized under Article 5 (1) to mean a fixed place of business through which the business of the enterprise is wholly or partly carried on. Further, as per such DTAAs, the income of a foreign enterprise generated in India can be taxed by the Indian government if the said foreign enterprise has a PE in India.

What constitutes a PE?

Article 5 (2) of most of the DTAAs entered by India provides an inclusive but not exhaustive list of what constitutes a PE. However, this concept needs to be understood in substance. As per the Andhra Pradesh High Court, a PE postulates the existence of a substantial element of an enduring or permanent nature of a foreign enterprise in another country which can be attributed to a fixed place of business in that country. It should be