Operational control enough to tax foreign firms in India, says SC

The Supreme Court on Thursday held that a multinational company may be taxed in India so long as it exercises significant operational control over such premises, even if it has no employees staying here for a period longer than the threshold typically used to assess whether the company is a so-called Permanent Establishment.

- Utkarsh Anand

The ruling , which has significant implications for MNCs ‘operating in India, came asa setback to Dubai-based Hyatt International Southwest Asia Ltd, which had challenged its tax liability in India for advisory and management services rendered to Hyatt hotels across the country between 2009 and 2018.

A bench of justices JB Pardiwala and R Mahadevan affirmed a 2023 Delhi High Court judgment that recognised Hyatt’s presence in India as a Permanent Establishment (PE) under Article 5(1) of the India-UAE Double Taxation Avoidance Agreement (DTAA). The court concluded that Hyatt’s active control over the day-to-day hotel operations in India through longstanding agreements established a fixed place PE, making it liable to pay tax in India. Typically, only branch offices, factories, mines etc are considered PEs, although there is also a stipulation related to the time ‘employees spend in India.