In the case of RGA International Reinsurance Company Ltd. [1] (Taxpayer), the key issue adjudicated by the Mumbai Income Tax Appellate Tribunal (Tribunal) was whether the Taxpayer, an Ireland company, had a permanent establishment (PE) in India due to services provided by its group company in India (I Co) and, consequently, whether the reinsurance premium earned by the Taxpayer was taxable under the India-Ireland double taxation avoidance agreement (DTAA).
In the facts of the case, the Taxpayer carried on business of providing reinsurance services to clients in India. It engaged I Co (a group company) to provide services like actuarial, underwriting and risk assessment services and all other critical support activities, including marketing support services, claims support services, data synopsis services and other administrative services. For such services, I Co was remunerated arm’s length price (ALP) and this was not disputed by the tax authority. The tax authority held that I Co created a fixed place PE, as well as a dependent agent PE (DAPE) of the Taxpayer in India. Accordingly, the tax authority proceeded to bring the reinsurance revenues to tax in India.
The Tribunal held that the Taxpayer did not have a fixed place PE in India due to the following reasons:
- The Taxpayer did not have any fixed premises at its disposal through which its business was carried on. Reliance was placed on the Supreme Court (SC) rulings in E-Funds IT Solutions [2] and Formula One [3] , wherein it was held that the taxpayers will be regarded as controlling the place of business only where they can employ it at their discretion.
- The mere fact that I Co is carrying on the Taxpayer’s business does not give rise to a PE. I Co is a separate legal entity which is remunerated at ALP.
- The core reinsurance activity of assumption of risk had been done outside India and it did not have any physically located premises in India at its disposal.
On the issue of DAPE, the Tribunal noted that since the activities carried out by I Co had been remunerated at arm's length price, the question regarding existence of DAPE was wholly academic and tax neutral i.e., once an arm's length remuneration is paid to the agent, nothing further survives for taxation in the hands of the DAPE. Reliance was placed on the Mumbai Tribunal coordinate bench ruling in the case of Asia Today Ltd. in this regard.
Thus, it was held that the business profits earned by the Taxpayer on account of the reinsurance business had no tax implications in India.
