E-Funds – Supreme Court of India indicates that the provision of ancillary services rather than direct customer services does not engage a services PE

Two American companies ran and serviced ATM networks in North America and also provided automated fraud prevention services. 40% of the worldwide staff of the group were employed by an indirect Indian subsidiary, which operated a call centre as well as providing software troubleshooting and testing services. Two key employees were U.S. employees who had been seconded to the Indian subsidiary.

Nariman J applied Formula One to state that “it is clear that there must exist a fixed place of business in India, which is at the disposal of the US companies, through which they carry on their own business” – and as that was not the case, they had no Indian PE based on a fixed place of business.

Respecting the services PE branch of the PE definition in the India-U.S. Treaty, he drew a distinction between the fact that the U.S. companies’ “customers receive services only in locations outside India” whereas “only auxiliary operations that facilitate such services are carried out in India.” Therefore, there also was no services PE in India.

Neal Armstrong. Summary of Assistant Director of Income Tax-I, New Delhi v. M/s E-Funds IT Solution Inc. Civil Appeal No. 6082 of 2015, 24 October 2017 under Treaties - Articles of Treaties - Art. 5.