PE Watch | Latest developments and trends, May 2023

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EY Global

11 May 2023
Subject Tax Alert
Categories Corporate Tax
Jurisdictions Global

PE case law

India: Offshore services connected to Indian PE are exempt from tax under India-Germany tax treaty

On 3 April 2023, the Delhi Tribunal decided case TS-185-ITAT-2023(DEL) (pdf), involving a German entity that provided airport management services in India. The entity had established a project office in India, which qualified as a permanent establishment (PE) in the country. The entity also provided offshore consultancy services from Germany. The German entity claimed that these services were not taxable in India under the Protocol of the India-Germany tax treaty. However, the Indian Tax Authorities disputed this position and sought to subject the payment for these offshore services to taxation under Article 12 (royalties and fees for technical services) of the tax treaty.

After considering the facts and arguments presented by both parties, the Delhi Tribunal determined that the offshore services were indeed connected to the PE, because the PE's active involvement was necessary for the services to be provided. Further, the Tribunal cited the Protocol's provision under which income derived by a German resident from planning, project, construction or research activities, as well as income from technical services exercised in Germany in connection with a PE situated in India, shall not be attributed to that PE and will hence be exempt from corporate income taxation in India. Thus, the Tribunal referred the matter back to the lower tax authority to determine the nature of services and whether it would fall within the scope of the Protocol so as to be exempt from tax in India or otherwise.

India: Distribution of online advertising does not create a PE in India

On 31 March 2023, the Bangalore bench of the Income Tax Appellate Tribunal (ITAT) issued a ruling in case ITA No.374 & 362/Bang/2013 (pdf) regarding the existence of a PE in India. In this case, an Indian entity and its associated enterprise in Ireland entered into an agreement for marketing and distribution of online advertising and the Indian entity paid distribution fees to its associated enterprise without deducting any withholding tax (WHT). The Indian Tax Authorities argued that distribution fees were taxable in India as the Indian entity constituted a Dependent Agent PE of the Irish entity and should have deducted WHT.

However, the ITAT disagreed and pointed out that the distribution agreement specifically stated that the Indian entity was not acting as an agent, employee, partner or franchisee of the Irish entity. The Indian company marketed and distributed online advertising independently, providing after-sales services to Indian advertisers and preparing invoices and collecting payments in its own name. Additionally, the distribution agreement between the Indian entity and advertisers in India contained no clauses that suggested the Indian entity had authority to bind the Irish entity.

The ITAT concluded that the Indian entity cannot be considered a Dependent Agent PE of the Irish entity.

PE tax rulings

Denmark: Gas storage does not constitute a PE

On 18 April 2023, the Danish Tax Board (DTB) published binding tax ruling SKM2023.178.SR focusing on whether a German company's gas storage activities in Denmark constitute a PE. The German company engages in buying and selling gas through digital gas trading platforms in Denmark and other countries, without selling gas to Danish end-users. The German company imports gas from various countries and all administrative work, purchases, and sales of gas take place in Germany, without any physical employees in Denmark. If the gas is not sold directly to retailers, it is stored in a gas warehouse in Denmark. The German company uses a gas storage facility in Denmark because the company often purchases gas in quantities too large to resell all at once.

After analyzing the company's activities, the DTB concluded that the gas storage does not create a PE in Denmark because storing the gas is preparatory or auxiliary in nature. As the German company's core business is buying and selling gas, the storage and delivery of gas in Denmark is considered auxiliary to this business. Therefore, the DTB ruled that the gas storage does not constitute a PE in Denmark for the German company.

Spain: Warehousing activities by a third party do not create a PE but a local distributor may qualify as agent

On 28 February 2023, the Spanish General Directorate of Taxes (GDT) issued tax ruling V0452-23 examining the potential creation of a PE in Spain by a Danish company engaged in manufacturing and marketing building materials and accessories.

The Danish company transports its goods to a third-party warehouse in Spain for logistical services. The Spanish subsidiary of the Danish company receives orders from Spanish customers, which it sends to the Danish company for registration. The Danish company then sends instructions for labeling and packaging to the logistics company in Spain, which delivers the products to the final customer. The Danish company has no employees in Spain.

The GDT concluded that the Danish company does not have a fixed place of business in Spain, because the warehouse where the Danish company's goods are stored is not at its disposal, and its employees are only permitted to access the warehouse with prior notice and if a staff member from the logistics company is present. Furthermore, the logistics company is not acting as an agent for the Danish company. Whether the Spanish subsidiary creates a PE in Spain through an agent depends on its activities. If it sells products to local distributors on its own behalf and account, then no PE is created. However, if it sells products in the name of and on behalf of the Danish company, then a PE is created in Spain.

Other PE developments

UAE: Decision outlines conditions for temporary and exceptional presence without creating a PE

On 10 April 2023, the United Arab Emirates (UAE) Ministry of Finance issued Decision No. 83 (pdf) on determining the conditions under which the presence of a natural person in the UAE would not create a PE for a nonresident person.

According to the Decision, a natural person's presence in the UAE will be considered temporary and exceptional if it meets the following conditions: (i) it is due to exceptional circumstances of a public or private nature; (ii) the exceptional circumstances could not have been reasonably predicted by the natural person; (iii) the natural person has no intention to stay after the circumstances at issue end; (iv) the nonresident did not previously have a PE in the UAE; and (v) the nonresident person did not anticipate that a natural person's presence in the UAE would create a PE under the tax legislation applicable in other jurisdictions.

"Exceptional circumstances" are events beyond the person's control that prevent the person from leaving the UAE, including public health measures, travel restrictions, natural disasters, and emergencies affecting the person or their relatives.

This Decision entered into effect on 13 May 2023.


For additional information with respect to this Alert, please contact the following:

Ernst & Young Belastingadviseurs LLP, Rotterdam
  • Ronald van den Brekel
Ernst & Young Solutions LLP, Singapore
  • Chester Wee
Ernst & Young LLP (United States), Global Tax Desk Network, New York
  • Jose A. (Jano) Bustos 
  • Ana Mingramm
  • Roberto Aviles Gutierrez

Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor

For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.