Canada - English


  • Service: Tax, Domestic Tax Services, Private Company (KPMG Enterprise) Tax Services
  • Date: 5/21/2014

India Court Rules Create a PE 

Global Tax Adviser


May 20, 2014


Alex Feness
GTA, International Corporate Tax


One of India's high courts recently held that the employees of a multinational corporation seconded to an Indian affiliate created a Service Permanent Establishment (PE) in India under India's applicable tax treaties. Additionally, since the services were of a ‘technical or consultancy' nature and the employees "made available" their know-how to the Indian affiliate for "future consumption", payments by the Indian affiliate to reimburse the multinational for the cost of the seconded employees were treated as "Fees for Technical/Included Services" under Indian domestic law and under India's income tax treaties with the U.K. and Canada. Consequently, the amounts were subject to Indian withholding tax.

Courts in India commented recently on the taxation of non-residents doing business in India. Previously, an Indian court that ruled that a foreign liaison office in India must pay tax on income-friendly activities.


In another previous ruling by the Indian high court, employees of a U.S. parent sent to India to provide stewardship services were not deemed to establish a PE even if the employees of the non-resident taxpayer were taken on deputation.


KPMG observation
KPMG India notes that taxpayers generally take the position that the applicable Indian affiliate, and not the multinational, is the "economic employer" of the seconded employees. As such, these employees do not result in a PE in India. However, court decisions related to secondment arrangements have been inconsistent - some sided with the taxpayer, others with the Indian taxation authorities. Given the adverse decision of the high court, KPMG India advises clients with Indian secondment arrangements to evaluate alternative structuring options and other risk-mitigation measures. You should consider these issues, as well as, among other things, issues related to human resources, indirect tax, foreign exchange, transfer pricing, and social security.

For more information, contact your KPMG adviser.



Information is current to May 20, 2014. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500