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2018 (6) TMI 556 - AAR - Income TaxFixed Place PE - essential ingredients of a Service PE - services rendered to the Applicant company by its Indian affiliate viz. Aramco India - India and Kingdom of Saudi Arabia DTAA - ALP determination - appellant owned oil company of the Kingdom of Saudi Arabia - Held that - The Revenue has indeed laboured hard to point out each of the clauses of the services to be rendered under the original Services Agreement and the Proposed Addendum, to make out its case that Aramco India was acting as an agent of the Applicant in India. Two things work against this position taken by the Revenue. Firstly, that Aramco India is a separately incorporated legal and taxable entity, and by virtue of para (8) of Article 5 of the DTAA, it does not automatically become a PE of the Applicant, and secondly, Clause 3 of the Proposed Addendum expressly excludes such activities from being carried out by Aramco India that can make it an agent of the Applicant. Based on the nature of business support / marketing support activities proposed to be undertaken by the Indian affiliate entity viz. Aramco Asia India Private Limited (Aramco India), as listed in the Statement of relevant facts (Annexure III) Aramco India would not create a Permanent Establishment (PE) for the Applicant in India under Article 5 of Double Taxation Avoidance Agreement between India and Kingdom of Saudi Arabia, where such activities of Aramco India are duly compensated on an Arm s Length basis in accordance with the Indian transfer pricing laws and regulations.
Issues Involved:
1. Whether the business support/marketing support activities proposed to be undertaken by Aramco Asia India Private Limited (Aramco India) create a Permanent Establishment (PE) for Saudi Arabian Oil Company (Saudi Aramco) in India under Article 5 of the Double Taxation Avoidance Agreement (DTAA) between India and Saudi Arabia. Detailed Analysis: 1. Fixed Place PE: - Definition and Requirements: Article 5(1) of the DTAA defines a PE as a fixed place of business through which the business of an enterprise is wholly or partly carried on. The Supreme Court in the Formula One case emphasized that such premises must be "at the disposal" of the enterprise, meaning the enterprise has the right to use and control the place. - Applicant's Operations: Saudi Aramco's main business activities, including oil production and sales, are carried out from Saudi Arabia. Aramco India, a separate legal entity, provides support services from its premises in India, which are used for its own business operations. - Conclusion: The premises of Aramco India are not at the disposal of Saudi Aramco for carrying out its main business activities. Therefore, Saudi Aramco does not have a Fixed Place PE in India. 2. Service PE: - Definition and Requirements: Article 5(3)(b) of the DTAA includes within the definition of PE the furnishing of services, including consultancy services, by an enterprise through employees or other personnel engaged by the enterprise for such purpose, provided the activities continue for more than 182 days within any 12-month period. - Applicant's Argument: Saudi Aramco is not rendering services to any customer in India through its employees or personnel. Instead, Aramco India provides support services to Saudi Aramco, which is compensated accordingly. - Revenue's Argument: The Revenue contended that the Directors of Aramco India, being high officials of Saudi Aramco, control the activities of the Indian subsidiary, implying a Service PE. - Conclusion: The Directors of Aramco India act in their capacity for Aramco India and not for Saudi Aramco. The services provided by Aramco India do not constitute the rendering of services by Saudi Aramco to customers in India. Therefore, no Service PE exists. 3. Agency PE: - Definition and Requirements: Article 5(5) of the DTAA states that an enterprise shall be deemed to have a PE if a person, other than an independent agent, acts on behalf of the enterprise and has the authority to conclude contracts in the name of the enterprise or habitually obtains orders for the enterprise. - Applicant's Argument: Aramco India is expressly prohibited from acting as an agent of Saudi Aramco, negotiating contracts, or obtaining orders on behalf of Saudi Aramco, as per Clauses 3 and 4 of the Proposed Addendum and Clause 5 of the Services Agreement. - Revenue's Argument: The Revenue argued that the activities of Aramco India, including market research and customer interactions, imply an Agency PE. - Conclusion: The agreements clearly prohibit Aramco India from undertaking activities that would make it an agent of Saudi Aramco. Therefore, Aramco India does not constitute an Agency PE for Saudi Aramco. General Observations: - Separate Legal Entity: Aramco India, being a separate legal entity, does not automatically become a PE of Saudi Aramco by virtue of being a subsidiary. - Support Services: The services provided by Aramco India are support services and do not involve the main business activities of Saudi Aramco. - Binding Effect: The ruling is based on the facts and agreements presented. Should the actual activities differ, the ruling would not be binding on the Revenue authorities. Ruling: Based on the nature of business support/marketing support activities proposed to be undertaken by Aramco India, as listed in the Statement of relevant facts, Aramco India would not create a Permanent Establishment (PE) for Saudi Aramco in India under Article 5 of the Double Taxation Avoidance Agreement between India and Saudi Arabia, provided such activities are duly compensated on an Arm's Length basis in accordance with Indian transfer pricing laws and regulations.
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