Supreme Court Holds Project Office Undertaking Non-core Activities In India Does Not Constitute Permanent Establishment

Background:

Once a turnkey project is awarded, a foreign company usually sets up Project Office (PO) in India to undertake project related activities. Sometimes, the only activity to be undertaken by the PO is to act as a communication link between the foreign company and the Indian customer. Therefore, the PO is not involved in any of the core activities. However, Revenue Authorities contend that such a PO constitutes a Permanent Establishment (PE) of a foreign company in India and thereby levy tax by attributing profits to the PE. Recently, the Supreme Court¹ had an occasion to examine whether the PO set up for non-core activities constitutes a Fixed Place PE in India. We, at BDO in India, have summarised the ruling of the Supreme Court and provided our comments on the impact of this landmark decision.