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February 2023

Article 5 of India-Switzerland DTAA – Liaison Office (LO) does not constitute PE as long as it is adhering to the approval conditions imposed by RBI

By Geeta Jani | Dhishat B. Mehta | Bhaumik Goda
Chartered Accountants
Reading Time 2 mins
14 S.R Technics Switzerland Ltd vs.
ACIT (International Taxation)
[ITA No: 6616/Mum/2018]
A.Y.: 2015-16
Date of order: 25th November, 2022

Article 5 of India-Switzerland DTAA - Liaison Office (LO) does not constitute PE as long as it is adhering to the approval conditions imposed by RBI

FACTS

Assessee, a Swiss Company was engaged in the maintenance, repair and overhaul for aircrafts, engines and components. It had a subsidiary company in Switzerland (Swiss Sub Co). Swiss Sub Co had set up a LO in India. The AO alleged that the said LO constituted the PE of the assessee in India. The assessee appealed to the DRP. The DRP upheld the order of the AO. Being aggrieved, the assessee appealed to the Tribunal.


HELD

  • Tribunal took note of following factual aspects:

  • Employees of the LO do not negotiate, finalize or discuss contractual aspects including pricing with the assessee’s customers.

  • Employees of LO are acting as a communication link between the assessee and customers.

  • The LO did not carry any activity, beyond that permitted by the RBI

  • LO did not have any infrastructure, facilities or stock of goods to carry out maintenance activities or render services.

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