Mumbai ITAT: Outsourced Functions ≠ PE

This Tax Alert by EY summarizes a recent ruling of the Mumbai Income Tax Appellate Tribunal (Tribunal) in the case of Swiss Re-Insurance Company Ltd. (Taxpayer). The Tribunal ruled that the Taxpayer’s wholly-owned Indian subsidiary (ICo) engaged in carrying out risk assessment services, marketing insurance and providing administrative support for the Taxpayer in India did not create a Permanent Establishment (PE) in India as per the India-Switzerland Double Taxation Avoidance Agreement (DTAA). The Tribunal also ruled that such an arrangement did not create a “business connection” in India for the Taxpayer under the Indian Tax Laws (ITL).

India offers several business advantages, including cost saving, which has prompted several foreign companies to set up operations in India to carry out some outsourced functions. This Tribunal decision provides clarity on the issue of whether such group entities providing services to the foreign enterprise triggers a PE in India for the foreign companies. This Tribunal ruling reiterates that there is no trigger of PE, including service PE, when the Indian entity furnishes services to the foreign company using its own resources and workforce.