Applicability of Article 7 of the Double Taxation Avoidance ...

Ruling clarifies Article 7 allows India to tax foreign company's PE based on its operations, not global profit/loss.

Case Laws     Income Tax

September 21, 2024

Applicability of Article 7 of the Double Taxation Avoidance Agreement (DTAA) between India and the United Arab Emirates regarding the taxation of profits attributed to a Permanent Establishment (PE) in India. The key points are: Income of a non-resident is taxable in India based on the principles of income accruing or arising, while global income of a resident is subject to taxation. Article 7 stipulates that only profits attributable to the PE are taxable in the source state, not the overall profits of the enterprise. The taxability of a PE's income is independent of the global profitability of the enterprise. The source state's right to tax a PE cannot be contingent upon the entity's overall income or loss. The decision clarifies that Article 7 does not restrict the source state's right to allocate income to the PE based on global income or loss of the cross-border entity.

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