India: Ruling on Agency PE in case of marketing and distribution activities for group companies

International Tax Review is part of Legal Benchmarking Limited, 1-2 Paris Garden, London, SE1 8ND

Copyright © Legal Benchmarking Limited and its affiliated companies 2025

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

India: Ruling on Agency PE in case of marketing and distribution activities for group companies

nayak.jpg

jain.jpg

Rajendra Nayak


Aastha Jain

The Mumbai Income Tax Appellate Tribunal (Tribunal) in the case of Varian India Private Ltd. (VIPL) [TS-292-ITAI-2013], recently ruled on the issue of creation of a Dependent Agent Permanent Establishment (Agency PE) on account of marketing and distribution activities carried out by an Indian branch for certain group companies. VIPL, a US company, had an Indian branch (taxpayer), engaged in marketing and distribution of products manufactured by group companies located in the US, Australia and Italy pursuant to a distribution and representation agreement (DRA) with them. As per the DRA, sales in India were made either by the Taxpayer on a principal-to-principal basis by importing goods from the group companies or directly by the group companies as facilitated by the taxpayer by rendering liaison, marketing and post-sale support activities. For undertaking such support activities, taxpayer earned commission income from the group companies. The Tribunal had to adjudicate on whether an agency PE was created in India of the group companies under India's tax treaties with US, Italy and Australia. It was held that the taxpayer would not constitute an agency PE in India as it performed only administrative support functions for the group companies. The taxpayer neither had any authority to conclude contracts or accept orders, nor did it assume any kind of risk on behalf of any of the group companies. Further, the taxpayer did not fulfil the twin cumulative conditions to be treated as a dependent agent under the tax treaties, that is, firstly, agent's activities should be devoted wholly or almost wholly for the enterprise and secondly, the transactions should not be made under the arm's-length conditions. Based on taxpayer's sales data for the past two years, it was observed that taxpayer is not devoted wholly or almost wholly on behalf of any one group company. It was compensated at an arm's-length price and this fact was not challenged by the tax authorities. Further, it was also held that a PE was not created merely because taxpayer was a wholly owned subsidiary of VIPL. In view of the above, an attribution of 10% profit margin by Indian tax authorities to taxpayer on the basis of global account of group companies was invalidated.

Rajendra Nayak (rajendra.nayak@in.ey.com) and Aastha Jain (aastha.jain@in.ey.com)

EY

Tel: +91 80 4027 5275

Website : www.ey.com/india

more across site & shared bottom lb ros

More from across our site

AI-powered tax agents are likely to be the next big development in tax technology, says Russell Gammon of Tax Systems
FTI Consulting’s EMEA head of employment tax and reward tells ITR about celebrating diversity in the profession, his love of musicals, and what makes tax cool
Canadian Prime Minister Mark Carney and US President Donald Trump have agreed that the countries will look to conclude a deal by July 21, 2025
The firm’s lack of transparency regarding its tax leaks scandal should see the ban extended beyond June 30, senators Deborah O’Neill and Barbara Pocock tell ITR
Despite posing significant administrative hurdles, digital services taxes remain ‘the best way forward’ for emerging economies, says Neil Kelley, COO of Ascoria
A ‘joint understanding’ among G7 countries that ‘defends American interests’ is set to be announced, Scott Bessent claimed
The ‘big four’ firm’s inaugural annual report unveiled a sharp drop in profits for 2024; in other news, Baker McKenzie and Perkins Coie expanded their US tax benches
Representatives from the two countries focused on TP as they met this week to evaluate progress under a previously signed agreement – it is understood
The UK accountancy firm’s transfer pricing lead tells ITR about his expat lifestyle, taking risks, and what makes tax cool
Dolphin Drilling intends to discuss the final liability amount and manner of settlement with HM Revenue and Customs
Gift this article