• 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].


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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