INTERNATIONAL TAX · PE ADVISORY

Permanent Establishment Risk Advisory in India

Find out whether your activities in India create a taxable presence before the tax authorities do. We assess permanent establishment risk under Indian law and tax treaties, restructure operations to reduce exposure, and support you through compliance and disputes.

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6types of PE we assess for every client
30+countries our clients come from
80+professionals, including international tax specialists
426client engagements completed in the last 5 years
01

What Is a Permanent Establishment (PE)?

A permanent establishment is a taxable presence that a foreign business creates in another country. Once a PE exists, the profits attributable to it can be taxed in that country.

Most tax treaties define a PE as a fixed place of business through which an enterprise carries on all or part of its business, and then extend the idea to service, agency and construction activities. India taxes a foreign company's business profits in two layers:

  • Under Indian domestic law, income is taxable if the foreign company has a “business connection” in India, which includes a Significant Economic Presence for certain digital and high-value transactions.
  • Under a tax treaty (DTAA), where one applies and is more beneficial, business profits are taxable in India only if the foreign company has a PE in India, and only to the extent of profits attributable to that PE.

Whether a PE exists turns on facts: what your people actually do in India, how long they stay, what authority they have, and how contracts and payments flow. Indian courts have ruled on PE in many cases, and outcomes depend heavily on documentation and conduct.

02

Types of Permanent Establishment

1

Fixed Place PE

Arises when the business has a place at its disposal in India, such as an office, branch, factory, workshop or site, through which it carries on business. Preparatory or auxiliary activities are generally excluded.

2

Service PE

Arises when employees or other personnel of the foreign company furnish services in India beyond a period set in the treaty, commonly 90 or 183 days within a 12-month period.

3

Agency PE

Arises when a dependent agent in India habitually concludes contracts, or habitually plays the principal role leading to contracts, on behalf of the foreign company. The Multilateral Instrument (MLI) has widened this test in many treaties.

4

Construction PE

Arises from a building site, construction, installation or assembly project in India that lasts beyond the treaty threshold, which ranges from six months to a year or more depending on the treaty.

5

Supervisory PE

Arises when the foreign company's personnel supervise construction, installation or other activities in India beyond the treaty threshold.

6

Subsidiary PE

A subsidiary is not a PE of its parent by default. But it can become one if it acts as a dependent agent, or if its premises or staff are effectively at the parent's disposal to carry on the parent's business.

03

Common Activities That Trigger PE Risk

  • Expatriates seconded or deputed to the Indian subsidiary
  • Foreign employees travelling frequently to India to serve customers
  • Indian sales staff or agents who negotiate or sign contracts for the parent
  • Remote employees in India, including those hired through an Employer of Record
  • Installation, commissioning and project supervision teams
  • Indian group companies providing support services to the parent
  • Office space, servers or equipment in India available to the parent
  • A liaison office going beyond its permitted representative role
04

What Happens If a PE Is Found in India?

  • Tax on attributable profits. Profits attributable to the PE are taxed in India at the rate for foreign companies, currently 35% plus applicable surcharge and cess.
  • Indian compliance obligations. The foreign company may need to file Indian tax returns, maintain books for its Indian operations and obtain an audit.
  • Transfer pricing. Transactions between the PE and the head office must be at arm's length and supported by transfer pricing documentation.
  • Withholding tax impact. Indian customers may need to withhold tax on payments, which affects cash flow.
  • Interest, penalties and double taxation. Retrospective findings can bring interest and penalties, and the same profits may be taxed in two countries unless treaty relief is claimed.
  • Wider business impact. PE affects financial reporting, pricing, contract structures and the strategy for India.
05

Our PE Risk Advisory Services

A

PE Determination & Structure Planning

  • Comprehensive review of your structure, activities and transaction flows in India
  • PE analysis under Indian domestic law and the applicable tax treaty, including MLI impact
  • Review of secondment, service and distribution agreements, and of employee roles
  • Tax-efficient structures and operating models that reduce PE exposure
  • Arm's-length remuneration for Indian group entities to limit profit attribution
  • Regular updates on PE rulings and their impact on your business
B

Compliance, Documentation & Disputes

  • Compliance and documentation where a PE exists or is likely
  • Profit attribution, Indian tax returns and related filings
  • Preparation and submission of required declarations, including Form 10F and tax residency documentation
  • Representation in assessments, appeals and tax litigation
  • Support with treaty relief, the Mutual Agreement Procedure (MAP) and Advance Pricing Agreements
06

How We Assess PE Risk

Fact-Finding

We map who does what in India: people, travel days, authority, premises, contracts and payment flows.

Legal Analysis

We test the facts against domestic law, the relevant treaty, the MLI and Indian case law.

Risk Rating

We rate each PE type as low, medium or high risk, and estimate the potential tax exposure.

Mitigation Plan

We recommend practical changes to roles, contracts, travel and pricing to reduce the risk.

Documentation

We draft or review agreements, policies and records that support your position.

Monitoring & Defence

We carry out periodic reviews as your India footprint grows, and represent you if questions arise.

07

Who Needs PE Risk Advisory?

Foreign groups with Indian subsidiariesCompanies seconding staff to IndiaBusinesses selling into India without an entityEPC, engineering & installation companiesTechnology, SaaS & digital businessesGlobal capability centresLiaison & branch offices

PE risk is part of wider cross-border planning. See our international tax planning services.

08

Why Choose AAPT & Associates

  • International tax specialists. Our consultants bring 17–20 years' experience in direct and international tax.
  • Treaty, TP and litigation in one team. PE analysis, transfer pricing and representation are handled together.
  • Practical, business-friendly advice. Mitigation that fits how your business really operates.
  • Foreign-client experience. Clients from over 30 countries, with clear English reporting.
  • End-to-end India support. From entry structuring to ongoing compliance.
  • Big 4-trained leadership. Partners with 14+ years each in audit, tax and advisory.

Request a PE Risk Review

09

Frequently Asked Questions

What is permanent establishment risk?
Permanent establishment risk is the risk that a foreign company's activities in India create a taxable presence, making the profits attributable to those activities taxable in India. It often arises unintentionally, through employees, agents, projects or premises in India.
Can an Indian subsidiary create a PE for its foreign parent?
A subsidiary is not a PE of its parent merely because the parent controls it. However, a PE can arise if the subsidiary acts as a dependent agent of the parent, or if the parent carries on its own business through the subsidiary's premises or staff. Arm's-length dealings and clear agreements reduce this risk.
How many days in India create a service PE?
It depends on the tax treaty. Many Indian treaties use a threshold of 90 or 183 days of service within a 12-month period, and some treaties have different tests. We review the specific treaty that applies to you.
What tax rate applies if a foreign company has a PE in India?
Profits attributable to the PE are taxed at the rate for foreign companies, currently 35% plus applicable surcharge and cess. Treaty provisions, profit attribution rules and transfer pricing all affect the final liability.
Do remote employees or EOR staff in India create PE risk?
They can, depending on their role. Employees who habitually negotiate or conclude contracts, or who carry out core revenue-generating activities for the foreign company, can create agency or fixed place PE exposure. Roles and authority should be reviewed before hiring.
How can PE risk be reduced?
Common measures include clear secondment and service agreements, limits on contracting authority, tracking of travel days, arm's-length remuneration for Indian group entities, keeping liaison offices within their permitted scope and, where appropriate, an Advance Pricing Agreement.

Unsure whether you have a PE in India?

Share a short overview of your India activities. Our international tax team will flag the key PE risks and next steps, at no cost and with no obligation.

Book a Free PE Risk Consultation