In a landmark decision with significant implications for the taxability of multinational corporations in India, the Supreme Court on Thursday ruled that Hyatt International Southwest Asia is liable to pay income tax in India, affirming its status as having a fixed place Permanent Establishment (PE) in the country. Experts believe this ruling provides a clear conceptual framework for determining PE thresholds.
A division bench of Justices JB Pardiwala and R Mahadevan dismissed an appeal by Hyatt International Southwest Asia against a Delhi High Court ruling stating, “We affirm the findings of the High Court that the appellant has a fixed place PE in India within the meaning of Article 5(1) of the DTAA, and that the income received under the SOSA is attributable to such PE and is therefore taxable in India.”
Dubai-based firm
Hyatt International Southwest Asia, a Dubai-based company, provides hotel consultancy and advisory services to Hyatt Group hotels, including several in India, under a Security of Supply Agreement (SOSA). The company had argued that its services were rendered from Dubai, with no obligation to station employees in India, only permitting occasional and temporary visits. They also contended that their income was not taxable in India as the Double Taxation Avoidance Agreement (DTAA) lacked a specific article for taxing Fees for Technical Services (FTS), and that the limited presence of employees did not exceed the nine-month threshold under Article 5(2)(i) of the DTAA, thus precluding a PE.
However, the apex court observed that Hyatt’s executives and employees made frequent and regular visits to India to oversee operations. The assessing officer’s findings, based on travel logs and job functions, established a continuous and coordinated engagement, even though no single individual exceeded the nine-month stay threshold.
The bench emphasised that under Article 5(2) of the DTAA, the relevance lies in the continuity of business presence in aggregate, not the length of stay of each individual employee. The ruling stated, “Once it is found that there is continuity in the business operations, the intermittent presence or return of a particular employee becomes immaterial and insignificant in determining the existence of a permanent establishment.”
According to an tax expert, this judgment clarifies the conceptual framework for determining PE thresholds. He noted that “frequent, regular visits by employees, rather than the duration of individual stays, is the key factor. Once continuity of business presence is established, the return or rotation of individuals becomes irrelevant; and operational control, oversight, and income linked to core functions establish a commercial nexus necessary for a PE.” Baid added that “The ruling could set a precedent for PE determinations in cases involving frequent employee travel to India.”
