Aramco India would not create a PE for Saudi Arabian Oil Company as per Treaty b/w India and Saudi Arabia: AAR [Read Order]

The New Delhi Bench of the Authority for Advance Rulings (AAR) in the application filed by Saudi Arabian Oil Company held that Aramco India would not create a PE for Saudi Arabian Oil Company as per Treaty b/w India and Saudi Arabia.

The applicant is a state owned oil company of the Kingdom of Saudi Arabia and the world’s largest crude oil exporter headquartered in Dhahran, Saudi Arabia and is a tax resident of Saudi Arabia. Saudi Aramco has established a Subsidiary company in India viz. Aramco Asia India Private Limited (Aramco India), incorporated and registered under the Indian Companies Act, in 2013. Though the primary object of the new entity is to provide procurement support services, it would also create awareness about Aramco and Saudi Arabian crude oil amongst crude buyers and refineries in India.

The issue before the present authority is that whether Aramco India would create a Permanent Establishment (PE) for the Applicant in India under Article 5 of Double Taxation Avoidance Agreement between India and Kingdom of Saudi Arabia (hereinafter “India-Saudi Arabia DTAA”), where such activities of Aramco India are duly compensated on an Arm’s Length basis in accordance with the Indian transfer pricing laws and regulations?

The Applicant contends that the above functions of Aramco India will not result in Saudi Aramco having a PE in India under of Article 5 of India-Saudi Arabia Double Taxation Avoidance Agreement (DTAA).

The Revenue has strongly contended that the Applicant has a PE in Aramco India, its subsidiary, through which it conducts its business by setting up a support team. Also, it controls the activities of the PE through its Directors. The Revenue argues that from the above clauses it becomes clear that the entire control and management of the company vests in the Board of Directors and the Directors of the Company can enter into contracts. Since, all the functions of the Indian Subsidiary are under the control and management of Saudi Aramco, the place of business of Indian Subsidiary is the fixed place PE of Saudi Aramco.

After hearing the rival contentions, the Authority held that the services carried on / to be carried on by Aramco India, as envisioned by Saudi Aramco in the Proposed Addendum appear to be in the nature of support services only, and do not appear to constitute the main business of the Applicant, which is production and sale of oil, and which is done from Saudi Arabia. As for the services rendered by Aramco India to Saudi Aramco from its premises, for which it will be compensated on arm’s length basis, this in itself has no bearing on whether a Fixed place PE exists or not.

The Authority after carefully considering the facts of the case was of the view that the applicant does not form either of the three PEs i.e. Fixed Place PE, Service PE or Agency PE.