Samsung Heavy Industries – Supreme Court of India finds that a Mumbai liaison office for a domestic construction project was not a PE

Samsung, a resident of South Korea, was a member of a consortium for fabricating and installing offshore drilling plaforms at an oil development off the west coast of India of an India oil company (“ONGC”). The Supreme Court of India found that a two-person liaison office in Mumbai (which was unfortunately called the “project office”) did not constitute a permanent establishment of Samsung.

Art. 5 of the Treaty with South Korea (the “DTAA”) provided inter alia that the term PE “means a fixed place of business through which the business of an enterprise is wholly or partly carried on,” and went on to provide (in Art. 4(e)) that the term was deemed not to include “the maintenance of a fixed place of business solely for the purpose of advertising, the supply of information, scientific research or any other activity, if it has a preparatory or auxiliary character in the trade or business of the enterprise.”

Nariman J stated:

[T[he Mumbai Project Office cannot be said to be a fixed place of business through which the core business of the Assessee was wholly or partly carried on. Also… the Mumbai Project Office … would fall within Article 5(4)(e) of the DTAA, inasmuch as the office is solely an auxiliary office, meant to act as a liaison office between the Assessee and ONGC.

Neal Armstrong. Summary of DIT vs. Samsung Heavy Industries Co Ltd (Supreme Court) CIVIL APPEAL NO. 12183 of 2016 under Treaties – Income Tax Conventions – Art. 5.