India rules · all investors
PE Risk: India rules for foreign companies
CA Utsav Dogra, Chartered Accountant, ICAI M. No. 542375
A subsidiary is a separate taxpayer, but the parent can still have its own taxable presence in India through what its people do here. Visiting executives who negotiate deals, Indian staff who habitually conclude contracts for the parent, or parent employees seconded to work under the parent's control are the usual triggers.
Keeping the boundary clear
A subsidiary is a separate taxpayer, but the parent can still have its own taxable presence in India through what its people do here. Visiting executives who negotiate deals, Indian staff who habitually conclude contracts for the parent, or parent employees seconded to work under the parent's control are the usual triggers.
The defence is structural: contracts signed outside India by the parent, Indian staff working under the Indian company's direction, secondment agreements that make the Indian company the economic employer, and clear authority limits.
If a PE exists, only the profit attributable to it is taxed in India, but the compliance burden, interest and penalties make prevention far cheaper than cure.
Common triggers
- Parent staff negotiating or concluding contracts in India.
- Indian employees acting as agents of the parent.
- Office space at the parent's disposal.
- Projects or services beyond the treaty's time limits.
Checklist
- Authority matrix for Indian staff
- Secondment agreements
- Travel logs for visiting executives
- Contract signing outside India
- Annual PE review
Common mistakes
- Parent sales staff closing deals from India
- Seconded staff still controlled by the parent
- Indian employees signing on behalf of the parent
- No records of visiting days
How this applies to your country
- USA to India en-US
- UK to India en-GB
- Japan to India en-JP
- Germany to India en-DE
- Singapore to India en-SG
- Australia to India en-AU
- China to India en-CN
- Hong Kong to India en-HK
- Russia to India en-RU
- Spain to India en-ES
- France to India en-FR
- UAE to India en-AE
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Questions
Does a liaison office create a PE?
It should not if it stays within its approved activities; problems arise when it negotiates or concludes contracts.
Are short business trips a risk?
Usually not for meetings, but service PE thresholds can be crossed by longer or repeated stays.
Does having a subsidiary create a PE for the parent?
Not by itself. Risk arises from what parent staff or the subsidiary's people do on the parent's behalf.
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