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CONCEPT OF PERMANENT ESTABLISHMENT

CONCEPT OF PERMANENT ESTABLISHMENT

In order to determine the taxability of business income of foreign enterprises operating in India, it is important to determine the existence of a Permanent Establishment (‘PE’). Article 5(1) of the DTAA provides that for the purpose of this convention the term ‘Permanent Establishment’ means a fixed place of business through which the business of an enterprise is wholly or partly carried on.

According to Article 5(2), the term PE includes

  1. Permanent establishment means a fixed place of business through which the business of an enterprises is wholly or partly carried on.
  2. Every DTAA has a specific clause, which will deal with an explanation of permanent establishment for the purpose of such DTAA.
  3. Business Income of a non-resident will not be taxed in India, unless such non-resident has a permanent establishment in India.
  4. Taxability of income under business connection and permanent establishment is explained here below:

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