—International Taxation & Transfer Pricing
Permanent Establishment (PE) & Business Connection Review
Assessment of PE and business connection exposure from cross-border operations and remote working.
Handled by a practising Chartered Accountant or Company Secretary.
Scope of work
Assessment of PE and business connection exposure from cross-border operations and remote working.
Key deliverables
- PE risk assessment report
Governing law
DTAAs; Income-tax Act (1961 / 2025, as applicable to the period)
Frequency
As required
REGISTRATION ONLY
Permanent Establishment (PE) & Business Connection Review
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- PE risk assessment report
REGISTRATION + COMPLIANCE CARE
Permanent Establishment (PE) & Business Connection Review + Compliance Care
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+ ₹9,599/yr for year-one ROC compliance
- PE risk assessment report
- Financial statements in Schedule III format
- Board report and AGM notice
- Filed AOC-4 with SRN
- Filed MGT-7 / MGT-7A with SRN
- Board and AGM minutes
500+
Companies incorporated
100%
CA/CS-signed filings
4.8/5
Founder rating
—A closer look
Understanding permanent establishment risk
Everything below is written for foreign companies with activities in India, and Indian subsidiaries of foreign groups — what creates a taxable presence, and how to manage the risk.
What is a PE and business connection review?
A foreign company's business profits are taxable in India only if it has a taxable presence here. Under Indian law, that's a 'business connection'. Under a tax treaty, which usually applies where more beneficial, it's a 'permanent establishment' (PE) — for example, a fixed place of business, a dependent agent, or employees providing services in India for long enough.
A PE review looks at a foreign company's activities in India — through employees, subsidiaries, agents, or projects — to identify whether a PE exists or could be alleged, and how to structure activities to manage the risk.
The key terms
The main types of taxable presence:
- Fixed place PE
- A place of business in India at the foreign company's disposal — an office, branch, factory, or site — through which its business is carried on.
- Dependent agent PE
- A person in India who habitually concludes contracts, or plays the principal role leading to contracts, on the foreign company's behalf.
- Service PE
- Under some treaties, a PE arises where employees or personnel provide services in India beyond a specified period.
- Construction or installation PE
- A building site or project lasting longer than the treaty's time threshold.
- Significant economic presence
- An Indian-law concept creating a business connection from digital transactions or users above thresholds — relevant where no treaty applies.
- Preparatory or auxiliary
- Activities like storage, display, or information gathering that generally don't create a PE on their own.
- Profit attribution
- If a PE exists, only profits attributable to it are taxable in India.
A simple example
A US software company sets up a Hyderabad subsidiary to provide development services on a cost-plus basis. A few US sales executives also spend months in India meeting Indian customers and negotiating deals the US company then signs. The review finds the subsidiary itself is low-risk, but the executives' activities could create a dependent agent or service PE for the US company. The company changes its approach: Indian customer contracts are handled by the subsidiary as a reseller under proper transfer pricing, and executive travel is tracked against treaty thresholds.
Why it matters
A PE finding can bring years of tax, interest, and penalties:
- Tax on business profits
- If a PE exists, profits attributable to it are taxed in India at the rates applicable to foreign companies.
- Retrospective exposure
- PE findings typically cover past years, with interest.
- Indian filings
- A PE brings obligations to file returns and maintain records in India.
- Subsidiaries as PEs
- A subsidiary isn't automatically a PE, but its activities, or employees seconded to it, can create one.
- Remote work
- Employees of foreign companies working from India can create a presence without anyone planning it.
- Withholding on payments
- Payers withhold tax on payments to a foreign company with a PE.
- Transfer pricing link
- Remunerating an Indian subsidiary at arm's length can reduce, but not always eliminate, PE risk.
Who is this for?
- Foreign companies with Indian subsidiaries or global capability centres
- Foreign companies with employees or contractors working from India
- Foreign companies selling into India through agents or distributors
- Foreign companies with project, construction, or installation work in India
- Groups seconding employees to or from India
PE analysis is highly fact-specific. Small changes in how people work, sign, or report can change the answer.
Types of PE compared
What can create a taxable presence:
| Aspect | Fixed place | Dependent agent | Service PE | Project PE |
|---|---|---|---|---|
| Trigger | A place at the enterprise's disposal | Habitually concluding contracts, or playing the principal role | Services by personnel in India beyond a period | A site or project beyond a time threshold |
| Common scenario | Office used by visiting staff | Local sales staff negotiating deals | Consultants or engineers on long assignments | Installation or construction contracts |
| Where defined | Treaties and Indian law | Treaties and Indian law | Some treaties only | Treaties |
| Mitigation | Avoid space at the enterprise's disposal | Limit authority; use arm's-length arrangements | Track days and personnel | Manage project durations and scope |
What we'll need from you
- Group structure
- The foreign company, Indian entities, and their relationships.
- Agreements
- Intercompany, distribution, agency, and customer contracts.
- People in India
- Employees, secondees, and contractors in India, their roles, and authority.
- Travel data
- Days spent in India by foreign personnel.
- Premises
- Offices or spaces used by foreign personnel.
- Revenue from India
- How the foreign company earns from Indian customers.
PE reviews are quoted per engagement, based on the complexity of the structure.
How a PE review works
A typical review:
- 1
Map activities
We map what the foreign company does in or towards India.
- 2
Review agreements
Contracts are reviewed for roles, authority, and risk allocation.
- 3
Interview people
We understand how people actually work, not just what contracts say.
- 4
Assess each PE type
Fixed place, agency, service, and project PE risks are assessed under the relevant treaty.
- 5
Recommend changes
We recommend changes to structure, contracts, or practices to reduce risk.
- 6
Document
The analysis and supporting evidence are documented.
Managing PE risk over time
PE risk changes as the business changes:
- Track travel
- Monitor days spent in India by foreign personnel.
- Control authority
- Make sure people in India don't conclude contracts for the foreign company unless intended.
- Keep contracts aligned
- Make sure practice matches what intercompany agreements say.
- Review secondments
- Structure secondments carefully, including who controls and bears the cost of secondees.
- Transfer pricing
- Keep the Indian entity remunerated at arm's length.
- Revisit annually
- Review whenever activities in India expand.
Benefits and responsibilities
Benefits
- A clear view of PE exposure
- Practical changes to reduce risk
- Contracts aligned with how people actually work
- Documentation to support your position
- Fewer surprises in assessments
Responsibilities
- Share how people actually work
- Track travel to India
- Keep practice consistent with contracts
- Tell us when activities change
- Keep transfer pricing documentation current
- Review arrangements annually
—FAQ
Questions multinationals actually ask us
Not by itself. A subsidiary is a separate entity. But its premises or employees can create a PE for the parent in specific circumstances — for example, if they habitually conclude contracts for the parent or the parent's staff use its premises for the parent's business.