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CA Final · Direct Tax Laws & International Taxation · Application and Interpretation of Tax Treaties

Delta Pte Ltd, a Singapore resident, provides technical services to an Indian client through its employees who stay in India for a total of 150 days in the previous year on a single project. The applicable treaty has a service PE clause triggered only if services continue for more than 9 months within any 12-month period. Delta has no fixed place of business in India. Which conclusion is correct on the PE question?

No service PE exists. The treaty requires services to continue for more than nine months in a twelve-month period, and a 150-day stay is only about five months. The client being Indian or the employees working in India does not by itself create a permanent establishment.

  1. AA service PE exists because the stay exceeds 90 days
  2. BA service PE exists because the client is an Indian resident
  3. CNo service PE exists because the 9-month threshold is not metCorrect
  4. DA fixed-place PE exists because the employees worked in India

Explanation

150 days is about 5 months, below the 9-month threshold in the treaty clause. The 90-day figure belongs to a different threshold and does not override the treaty. The Indian client's residence does not create a PE, and no fixed place of business is available to the foreign company.

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