Service PE

1
Service PE A case study

• June 28, 2008

2
Facts

• A Singapore based institutional investor company
  (Inv Co) proposes to expand its operations to
  include India as a investment destination
• Inv Co does not have knowledge of the Indian
  market and thus appoints another related
  Singapore company (AMC) to advise it on Indian
  investments
• The Singapore AMC sends its employees to India
  from a time to time basis to undertake research
  on potential Indian investments and to meet with
  various people in this regard and to have
  discussions
• Having undertaken primary research in India, the
  Singapore AMC does further desktop analysis in
  Singapore and on the basis of the primary
  research in India and subsequent analysis in
  Singapore, makes investment recommendations to
  Inv Co
• The presence of employees of Singapore AMC in
  India is typically in the range of 45 60 days
  in a fiscal year

3
Income-tax issues

• Whether it can be said that Singapore AMC is
  rendering services within India through employees
  to Inv Co for Article 5 (6) of the India
  Singapore tax treaty to be invoked ?
• Even if it can be said that Singapore AMC is
  rendering services within India, would the number
  of days threshold for a Permanent Establishment
  to be deemed to exist in India be 30 days or 90
  days ?

4
Analysis

• Article 5(6) of the India-Singapore treaty
• An enterprise shall be deemed to have a permanent
  establishment in a Contracting State if it
  furnishes services, other than services referred
  to in paragraphs 4 and 5 of this Article and
  technical services as defined in Article 12,
  within a Contracting State through employees or
  other personnel, but only if
• (a) activities of that nature continue within
  that Contracting State for a period or periods
  aggregating more than 90 days in any fiscal year
  or
• (b) activities are performed for a related
  enterprise (within the meaning of Article 9 of
  this Agreement) for a period or periods
  aggregating more than 30 days in any fiscal year.
• Relevant extract of Article 9 of the
  India-Singapore treaty
• Where -
• (a) an enterprise of a Contracting State
  participates directly or indirectly in the
  management, control or capital of an enterprise
  of the other Contracting State, or
• (b) the same persons participate directly or
  indirectly in the management, control or capital
  of an enterprise of a Contracting State and an
  enterprise of the other Contracting State

5
Conclusion

• The following supports the argument that
  Singapore AMC is not rendering services within
  India to Inv Co for Article 5(6) of the India
  Singapore treaty to apply

• The contract for rendering services is between
  Singapore AMC and Inv Co outside India
• The recipient of services i.e. Inv Co is outside
  India
• The employees of Singapore AMC visit India not to
  render services to Inv Co but to gather data and
  information to enable them to render services to
  Inv Co
• The investment recommendations are made by
  Singapore AMC to Inv Co in Singapore

6
Conclusion

• The following supports the argument that the
  period of stay in India of employees in this case
  for a PE to be deemed to exist should be 90 days
  and not 30 days

• Article 9 refers to a resident of one contracting
  state and a resident of another contracting state
• While Inv Co and Singapore AMC may be associated
  enterprises for the purposes of the Income-tax
  Act, they are not related enterprises as per
  Article 9 of the treaty since Inv Co and
  Singapore AMC are both residents of the same
  contracting state
• Hence, Article 5(6)(a) of the treaty should apply
  and not Article 5(6)(b)

7
Thank you