PE case law

India: High Court clarifies PE status for a company providing money transfer services

On 18 December 2024, the Delhi High Court ruled on a case addressing the determination of a Permanent Establishment (PE) under the India-United States tax treaty. The case involved a foreign company that facilitated money transfer services through a network of agents in India, raising questions about whether these arrangements constituted a PE in India.

The tax authorities contended that the company had both a fixed place of business and a Dependent Agent PE in India. They argued that the company's liaison office functioned as a fixed place of business, contributing to its core revenue-generating activities. Additionally, the authorities asserted that local agents, such as banks and financial institutions, acted on behalf of the foreign entity, securing business and habitually concluding contracts in India. This, they claimed, created a Dependent Agent PE under the provisions of the tax treaty. Furthermore, the tax authorities emphasized that the software installed in the offices of agents for processing transactions was effectively liable to be viewed as establishing a PE in India.

The Delhi High Court rejected these arguments. It concluded that the liaison office was strictly limited to preparatory and auxiliary activities, as approved by the Reserve Bank of India (RBI), and therefore did not constitute a fixed place of business. Regarding the Dependent Agent PE, the court observed that the local agents were independent entities conducting their own business. Their activities, while supporting the foreign company, did not rise to the level of securing business or habitually concluding contracts on behalf of the foreign entity. Finally, the court held that the provision of software to facilitate transactions was auxiliary in nature and insufficient to establish a PE in India.

BEPS MLI

Kenya deposits instrument of ratification of the MLI

On 8 January 2025, Kenya deposited its instrument of ratification of the Base Erosion and Profit Shifting (BEPS) Multilateral Instrument (MLI) with the Organisation for Economic Co-operation and Development (OECD) and confirmed its MLI positions. With respect to the PE provisions, Kenya removed its reservation on Article 13 (specific activity exemptions) and confirmed its preliminary positions on the remaining PE provisions of the MLI. Therefore, all the PE provisions will apply to Kenya's Covered Tax Agreements (CTAs) to the extent that there is a matching position between Kenya and the other contracting state.

The MLI will enter into force for Kenya on the first day of the month following the expiration of a period of three calendar months beginning on the date of the deposit of its instrument of ratification (i.e., on 1 May 2025).