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Service PE – A case study. June 28, 2008. Facts. A Singapore based institutional investor company (‘Inv Co’) proposes to expand its operations to include India as a investment destination
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Service PE – A case study June 28, 2008
Facts • A Singapore based institutional investor company (‘Inv Co’) proposes to expand its operations to include India as a investment destination • Inv Co does not have knowledge of the Indian market and thus appoints another related Singapore company (‘AMC’) to advise it on Indian investments • The Singapore AMC sends its employees to India from a time to time basis to undertake research on potential Indian investments and to meet with various people in this regard and to have discussions • Having undertaken primary research in India, the Singapore AMC does further desktop analysis in Singapore and on the basis of the primary research in India and subsequent analysis in Singapore, makes investment recommendations to Inv Co • The presence of employees of Singapore AMC in India is typically in the range of 45 – 60 days in a fiscal year
Income-tax issues • Whether it can be said that Singapore AMC is rendering services within India through employees to Inv Co for Article 5 (6) of the India – Singapore tax treaty to be invoked ? • Even if it can be said that Singapore AMC is rendering services within India, would the number of days threshold for a Permanent Establishment to be deemed to exist in India be 30 days or 90 days ?
Analysis Article 5(6) of the India-Singapore treaty An enterprise shall be deemed to have a permanent establishment in a Contracting State if it furnishes services, other than services referred to in paragraphs 4 and 5 of this Article and technical services as defined in Article 12, within a Contracting State through employees or other personnel, but only if: (a) activities of that nature continue within that Contracting State for a period or periods aggregating more than 90 days in any fiscal year; or (b) activities are performed for a related enterprise (within the meaning of Article 9 of this Agreement) for a period or periods aggregating more than 30 days in any fiscal year. Relevant extract of Article 9 of the India-Singapore treaty Where - (a) an enterprise of a Contracting State participates directly or indirectly in the management, control or capital of an enterprise of the other Contracting State, or (b) the same persons participate directly or indirectly in the management, control or capital of an enterprise of a Contracting State and an enterprise of the other Contracting State
Conclusion The following supports the argument that Singapore AMC is not rendering services within India to Inv Co for Article 5(6) of the India Singapore treaty to apply: • The contract for rendering services is between Singapore AMC and Inv Co outside India • The recipient of services i.e. Inv Co is outside India • The employees of Singapore AMC visit India not to render services to Inv Co but to gather data and information to enable them to render services to Inv Co • The investment recommendations are made by Singapore AMC to Inv Co in Singapore
Conclusion The following supports the argument that the period of stay in India of employees in this case for a PE to be deemed to exist should be 90 days and not 30 days: • Article 9 refers to a resident of one contracting state and a resident of another contracting state • While Inv Co and Singapore AMC may be associated enterprises for the purposes of the Income-tax Act, they are not related enterprises as per Article 9 of the treaty since Inv Co and Singapore AMC are both residents of the same contracting state • Hence, Article 5(6)(a) of the treaty should apply and not Article 5(6)(b)
