India | APAC | Direct Tax
April 11, 2024
Indian Court's Ruling on Profit Attribution for Singapore Company's Indian Operations
No further profit attribution if an associated enterprise is remunerated at arm´s length
On 21st March 2024, the Delhi Bench of the Income Tax Appellate Tribunal (ITAT) made a significant ruling in favor of a Singaporean company. It determined that no further profits are attributable to the company's alleged Permanent Establishment (PE) in India, as its Indian associated enterprise (AE) had already been remunerated at arm's length.
This case originated from the Indian tax authorities' previous determination that the Singaporean company's Indian AE constituted a fixed-place PE and a dependent agent PE, resulting in attributed profits. Initially, the ITAT had ruled that no PE existed for the Singaporean company in India. However, the matter was remanded by the Delhi High Court for a decision on profit attribution.
The Singaporean company argued before the ITAT that no further profit attribution was necessary since its Indian AE had already been remunerated at arm's length, citing a Supreme Court ruling. The ITAT accepted this argument, emphasizing that the Indian AE did not undertake additional functions leading to a PE.
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