Facts
The Aramex group is in the business of door-to-door express shipments by air and land and performing related transport service.
Aramex International Logistics („the applicant‟), is a Aramex group company is incorporated in Singapore and is also tax resident of Singapore.
The applicant entered into an agreement dated 1 April 2010 with Aramex India Pvt. Ltd. („AIPL‟) for the movement of packages within India and outside India which is on a principal to principal basis
The applicant has appointed AIPL as a non-exclusive service provider with respect to the international express business into India and from India and similarly AIPL has appointed the applicant as a non-exclusive service provider with respect to such business.
In respect of outbound consignments, AIPL picks up the consignments from the respective consignors in India and gets them delivered to a destination outside India. On such consignments reaching the overseas destination, the applicant arranges to get them cleared and delivers them to the ultimate consignee.
In respect of inbound consignments, the applicant picks up the consignments from the consignor in various foreign countries, whether by itself or through affiliate and tenders them either to international airlines or on board countries for transportation. On such consignments reaching India, AIPL acting as an independent contractor, takes necessary steps for delivery to consignee.
The applicant charges fees to AIPL in connection with invoicing and payment functions performed by it on account of the activities conducted outside India in connection with the international express business.
Issues before the AAR
Whether the applicant has a permanent establishment („PE‟) in India?
If there exists a PE, whether the receipts by the applicant from outbound and inbound consignments are attributable to the PE of the applicant in India?
If the transactions between the applicant and AIPL are on arm‟s length basis, whether any income can still be attributed to the PE of the applicant in India?
Observations and Ruling of the AAR
PE of the applicant in India
Aramex group could not successfully conduct its business of transporting and delivering articles from and in India without AIPL performing its role in India.
When a business cannot be carried on exclusively without the intervention of another entity, a subsidiary, normally that entity must be deemed to be the establishment of that group in that particular country.
The position may be different when the entity is an independent entity uncontrolled by the group unless it satisfies other requirements mentioned in Article 5(2) of the India-Singapore tax treaty.
In a case where a 100% subsidiary is created for the purpose of attending to the business of the group in India, the Indian subsidiary must be taken to be a PE of the group in India.
AIPL, the subsidiary has a fixed place of business and branches. The business of the applicant Amarex group in India is only carried on by AIPL.
Merely entering into an agreement describing the subsidiary which is controlled legally or persuasively by the principal, as an independent entity or a non-exclusive agent would not qualify AIPL within the ambit of Article 5(10) of the India-Singapore tax treaty.1
AIPL is a mere camouflage to screen the fact that AIPL is really a PE of the applicant‟s group in India.
AIPL secures orders in India wholly for the Aramex group. It also has the right to conclude and concludes contracts for the group for its express shipment business. On facts, AIPL has to be deemed to be a PE of the Aramex group and the applicant in India.
AIPL is a PE of the applicant in India within the meaning of Article 5 of the India-Singapore tax treaty.
Taxability of outbound and inbound consignments
Receipts by the applicant from outbound and inbound consignments attributable to the PE in India are taxable in India.
Attribution of income to the PE
It has to be verified whether transactions as per agreement dated 1 April 2010 are on arm‟s length basis to determine if any income can still be attributed to the PE in India.
Conclusion
Based on the facts of the case, the AAR concluded that the wholly-owned subsidiary of the applicant created a PE of the applicant in India under the India-Singapore tax treaty.
Source:AAR ruling in the case of Aramex International Logistics Pvt. Ltd. (AAR No. 1061 of 2011) dated 7 June 2012
The Aramex group is in the business of door-to-door express shipments by air and land and performing related transport service.
Aramex International Logistics („the applicant‟), is a Aramex group company is incorporated in Singapore and is also tax resident of Singapore.
The applicant entered into an agreement dated 1 April 2010 with Aramex India Pvt. Ltd. („AIPL‟) for the movement of packages within India and outside India which is on a principal to principal basis
The applicant has appointed AIPL as a non-exclusive service provider with respect to the international express business into India and from India and similarly AIPL has appointed the applicant as a non-exclusive service provider with respect to such business.
In respect of outbound consignments, AIPL picks up the consignments from the respective consignors in India and gets them delivered to a destination outside India. On such consignments reaching the overseas destination, the applicant arranges to get them cleared and delivers them to the ultimate consignee.
In respect of inbound consignments, the applicant picks up the consignments from the consignor in various foreign countries, whether by itself or through affiliate and tenders them either to international airlines or on board countries for transportation. On such consignments reaching India, AIPL acting as an independent contractor, takes necessary steps for delivery to consignee.
The applicant charges fees to AIPL in connection with invoicing and payment functions performed by it on account of the activities conducted outside India in connection with the international express business.
Issues before the AAR
Whether the applicant has a permanent establishment („PE‟) in India?
If there exists a PE, whether the receipts by the applicant from outbound and inbound consignments are attributable to the PE of the applicant in India?
If the transactions between the applicant and AIPL are on arm‟s length basis, whether any income can still be attributed to the PE of the applicant in India?
Observations and Ruling of the AAR
PE of the applicant in India
Aramex group could not successfully conduct its business of transporting and delivering articles from and in India without AIPL performing its role in India.
When a business cannot be carried on exclusively without the intervention of another entity, a subsidiary, normally that entity must be deemed to be the establishment of that group in that particular country.
The position may be different when the entity is an independent entity uncontrolled by the group unless it satisfies other requirements mentioned in Article 5(2) of the India-Singapore tax treaty.
In a case where a 100% subsidiary is created for the purpose of attending to the business of the group in India, the Indian subsidiary must be taken to be a PE of the group in India.
AIPL, the subsidiary has a fixed place of business and branches. The business of the applicant Amarex group in India is only carried on by AIPL.
Merely entering into an agreement describing the subsidiary which is controlled legally or persuasively by the principal, as an independent entity or a non-exclusive agent would not qualify AIPL within the ambit of Article 5(10) of the India-Singapore tax treaty.1
AIPL is a mere camouflage to screen the fact that AIPL is really a PE of the applicant‟s group in India.
AIPL secures orders in India wholly for the Aramex group. It also has the right to conclude and concludes contracts for the group for its express shipment business. On facts, AIPL has to be deemed to be a PE of the Aramex group and the applicant in India.
AIPL is a PE of the applicant in India within the meaning of Article 5 of the India-Singapore tax treaty.
Taxability of outbound and inbound consignments
Receipts by the applicant from outbound and inbound consignments attributable to the PE in India are taxable in India.
Attribution of income to the PE
It has to be verified whether transactions as per agreement dated 1 April 2010 are on arm‟s length basis to determine if any income can still be attributed to the PE in India.
Conclusion
Based on the facts of the case, the AAR concluded that the wholly-owned subsidiary of the applicant created a PE of the applicant in India under the India-Singapore tax treaty.
Source:AAR ruling in the case of Aramex International Logistics Pvt. Ltd. (AAR No. 1061 of 2011) dated 7 June 2012
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