GE Energy Parts – High Court of Delhi finds that GE U.S. companies had a PE in India based on the intensive involvement of their employees in India in contact negotiations

Various non-resident General Electric companies employed non-resident employees (the “expatriates”) in an office in India to secure customers and negotiate contracts with them. Bhat J found that as this was an intensive process, their services were not merely of “a preparatory or auxiliary character,” and the office constituted a fixed place of business and, thus, a permanent establishment for purposes of the India-U.S. Convention.

As with some other Indian PE cases, the facts are quite unclear, including the respective work performed by the expatriates and by an Indian subsidiary which had local Indian employees. Bhat J appeared to find (somewhat at odds with his finding above) that the Indian subsidiary was also an agency PE of the non-resident GE companies given that it was considered through its Indian employees or (somehow) the expatriates to have an extensive involvement in the negotiation of the contracts.

Bhat J accepted a finding below that, in the absence of any evidence of the profits generated from the sales in India, they should be estimated at 10% of such sales, and that 26% of this profit was attributable to the operations carried out by the PE in India.

Neal Armstrong. Summary of GE Energy Parts Inc. v. Commissioner of Income Tax (International Taxation), ITA 621/2017, 21 December 2018 (High Court of Delhi) under Treaties – Income Tax Conventions – Article 4.