Asia-Pacific Transfer Pricing Handbook

Chapter Twelve

PE Issues Impact Indian Transfer Pricing

Multinational Taxpayers increasingly must address the fact that tax collectors in a myriad of states are developing increasingly sophisticated tax collection strategies. One such strategy of critical importance is the penchant of the tax authorities to investigate potential permanent establishment (PE) activities. If the tax authority can ascertain the presence of these PE activities, it develops a transfer pricing adjustment in favor of itself. Such multinational taxpayers are increasingly facing the risk of extensive double taxation.

One major country making extensive use of ascertaining PE activities and developing transfer pricing adjustments is India. The long arm of the Indian tax authorities extends outward, reaching beyond the geographical confines of the country itself. This long arm often reaches the activities of Indian-based activities taking place abroad as well as those of foreign-based enterprises undertaking activities in India.

Double taxation arises as the U.S. tax authorities also extend outward, imposing taxes on the same income that others would tax. Tax authorities within the United States and foreign countries are also increasing their tax jurisdictions. These long arms of the tax law often reach the activities of non-Indian companies abroad as well as Indian-based activities located outside India.

India, the United States, other treaty partners, and states within the United States seek to impose taxation ...