Hyderabad ITAT rules no supervisory PE in the absence of construction or building site under India-Germany DTAA

This Tax Alert summarizes a recent ruling of Hyderabad Income Tax Appellate Tribunal (ITAT) in the case of GFA Anlagenbau Gmbh on whether the supervisory activities carried out in India by the employees of a German company (FCo) in relation to the projects carried out in India, constitutes a Permanent establishment (PE) for FCo in India.

The ITAT held that in the absence of a fixed place of business in the form of building or construction site at the disposal of FCo, merely carrying out supervisory activities in India will not trigger PE for FCo in India both under the Indian Tax Laws (ITL) as well as the India–Germany Double Taxation avoidance Agreement (DTAA).

Existence of PE has emerged as a contentious international tax issue for multinational enterprises doing business in India. The ITAT, in this decision, has ruled that mere supervisory work delinked with building/construction site cannot constitute a PE. The ITAT applied the principles of fixed place PE for the purpose of examining emergence of supervisory PE even in the context of UN model patterned treaty which specifically includes supervisory activities in connection with construction site as a specific trigger of PE.