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Permanent Establishment (PE)

Posted @ February 3, 2014, 3:03 am under (International Taxation Services)

PE Concept
Under DTAA, tax is required to be deducted if there is PE in India. The PE concept marks the line of demarcation between trading with a country & trading within a country. In different DTAAs, PE has been defined in Article 5 differently but fundamentally the term permanent shall include:
(a) a place of management;
(b) a branch;
(c) an office;
(d) a factory;
(e) a workshop;
(f) a mine, an oil or gas well or a quarry
(g) a warehouse in relation to a person providing storage facilities for others;
(h) a farm, plantation or other place where agricultural, pastoral, forestry or plantation activities are carried on;
(i) premises used as a sales outlet or for receiving or soliciting orders;
In general to constitute a PE AAA rating i.e. following tests should be satisfied:
Asset test
Agency test
Activity test
After discussing above provisions and applicability of TDS in each of them, following jurisprudence are noteworthy:
Interest on notified securities held by a non-resident including income by way of redemption of such bonds or interest on Non-Resident (External) Account in any bank in India, in case of an individual is not taxable by virtue of section 10(4) and hence no tax should be deducted.

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