Global

Details

  • Service: Tax, Global Transfer Pricing Services, Global Compliance Management Services, International Tax
  • Type: Regulatory update
  • Date: 9/26/2013

India - PE-related transactions are domestic; transfer pricing not applicable 

September 26: The Hyderabad Bench of the Income-tax Appellate Tribunal, in a case concerning a company involved in infrastructure activities, held that transactions between the taxpayer and related parties having a permanent establishment (PE) in India are not “international transactions,” and therefore the transfer pricing rules do not apply. IJM (India) Infrastructure Ltd. v. ACIT [ITA No. 1814/HYD/2012, Assessment Year 2008-09].

Background

The taxpayer (an Indian company) was engaged in the business of construction and maintenance of road, bridges, townships, and residential and commercial buildings in India.


The taxpayer entered into sub-contracts from a Malaysian company with a PE in India and also with a joint venture—with a wholly owned subsidiary of a Malaysian company—that was an “association of persons” (AOP) in India.

Tribunal holding

The tribunal held that the transactions with the PE and the joint venture were not “international transactions” because—


  • The PE had a place of business in India by virtue of its registration, and that under the India-Malaysia income tax treaty, a PE is treated as a separate legal entity, independent of its foreign principal enterprise.
  • The joint venture was formed in India by an agreement and subject to tax as AOP—i.e., a resident of India due to the location of the control and management of its affairs.

Read a September 2013 report [PDF 337 KB] prepared by the KPMG member firm in India: The Tribunal held that transactions between an Indian Company and the Permanent Establishment in India are domestic transactions – Transfer Pricing not applicable for relevant year



Contact a tax professional with KPMG's Global Transfer Pricing Services.




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