Permanent establishment
This query is : Resolved
15 February 2013
A Hong Kong based Company "X" is having 100% subsidiary Company "Y" in India.
The Company "X" is entering into business arrandement with Co. "A" in India.
There are no transactions except equity share purchase between Co. "X" and "Y".
Question
Does Co. "Y" becomes Permanent Establishment of Company "X", merely because
Co. "X" (Honkong) is holding 100% shares in Indian - Co. "Y"?
What if there are business transactions between Co"X" and Co."Y"?
The Company "X" is entering into business arrandement with Co. "A" in India.
There are no transactions except equity share purchase between Co. "X" and "Y".
Question
Does Co. "Y" becomes Permanent Establishment of Company "X", merely because
Co. "X" (Honkong) is holding 100% shares in Indian - Co. "Y"?
What if there are business transactions between Co"X" and Co."Y"?
15 February 2013
Dear Sailesh,
India and Hongkong do not have a DTAA.
So, you need to check the taxability of income from the perspective of section 5 and 9 of the Income-tax Act, 1961 (at the end of the day, the purpose of determination of PE is to decide the profit attribution)
You must refer to explanation 5 to Section 9(1)(i):
Explanation 5.—For the removal of doubts, it is hereby clarified that an asset or a capital asset being any share or interest in a company or entity registered or incorporated outside India shall be deemed to be and shall always be deemed to have been situated in India, if the share or interest derives, directly or indirectly, its value substantially from the assets located in India;]
and 9(1)(iv) : income accrued in India includes : (iv) a dividend paid by an Indian company outside India.
So to answer your questions. Possible income in future for Company X are taxable in India. Existence of WOS in India doesn't affect this taxability.
Further, if there are transactions between X and Y, Section 9(1)(i) shall be invoked again and TP regulations shall also apply.
whether that consitute a PE is always a subjective question that cannot be generally answered and depends on case to case.
India and Hongkong do not have a DTAA.
So, you need to check the taxability of income from the perspective of section 5 and 9 of the Income-tax Act, 1961 (at the end of the day, the purpose of determination of PE is to decide the profit attribution)
You must refer to explanation 5 to Section 9(1)(i):
Explanation 5.—For the removal of doubts, it is hereby clarified that an asset or a capital asset being any share or interest in a company or entity registered or incorporated outside India shall be deemed to be and shall always be deemed to have been situated in India, if the share or interest derives, directly or indirectly, its value substantially from the assets located in India;]
and 9(1)(iv) : income accrued in India includes : (iv) a dividend paid by an Indian company outside India.
So to answer your questions. Possible income in future for Company X are taxable in India. Existence of WOS in India doesn't affect this taxability.
Further, if there are transactions between X and Y, Section 9(1)(i) shall be invoked again and TP regulations shall also apply.
whether that consitute a PE is always a subjective question that cannot be generally answered and depends on case to case.
19 February 2013
Here there can be no PE but "Business Connection" of Company X in India.
The exact nature of transactions need to be seen before arriving at Businees Connection.
Just holding of equity shall not make the investment of X as business Connection.
Anuj
femaquery@gmail.com
The exact nature of transactions need to be seen before arriving at Businees Connection.
Just holding of equity shall not make the investment of X as business Connection.
Anuj
femaquery@gmail.com
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