The taxability of any entity depends on its residential status in India. The Indian Income Tax Act provides thata resident taxpayer is subject to tax in India with respect to its global income. Even if a company does not have a presence in India, but may potentially have some kind of activity or is present through an unincorporated structure like liaison or branch office, the notion of a business connection will assume significance. And, if income is derived from such a business connection in India, it will be liable to pay tax on "such part of the income as is reasonably attributable to the operations carried out in India." If transactions between a non-resident entity and the PE is at arm's length from the inception, no profits can be attributed to a PE from its work done on behalf of the non-resident entity.
Calculation of business profits attributable to a PE is fact specific. In this hyperlinked e-newsline titled " Permanent Establishments: Attribution of Business Profits", three specific situations have been discussed by the Indian courts categorizing the kind of PE to which the profits can be attributed.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
