Interplay Between Foreign Taxpayers' Global Profits And PE Profit Attribution

Background

Revenues earned by MNCs from India often remain under the lens of the Indian taxation authorities for examination of constitution of Permanent Establishment (‘PE') in India and computation of profits attributable to such PE. The issue of attribution of business profits to a PE in a source country especially in case of losses at global level has been a subject matter of debate. This issue was somehow put to rest by the Delhi High Court in case of Nokia Solutions and Networks¹, wherein it was held that no question of attribution of profits to PE arises in case the group has incurred losses at global level. However, recently the Delhi HC in Hyatt International Southwest Asia Limited² expressed its prima facie disagreement with the erstwhile decision in  Nokia Solutions  and has referred the issue of attribution of profits to a Larger Bench. With this, the issue of attribution of profits in case of losses at the global level has once again gathered spotlight.