This update is in continuation to our earlier update issued in February, 2024,^[1] wherein, we highlighted the controversy in relation to profit attribution to permanent establishment (‘PE’) in cases where the foreign entity has suffered a loss at the global level, and the fact that this issue was pending consideration before a full bench of the Delhi HC.

The referral stands decided in favour of the Revenue and while differing with its earlier opinion, The Delhi HC has held that attribution of profit to PE in India must be determined on the footing that the PE is an independent taxable entity and the same should not be contingent upon profitability or otherwise of the enterprise at the global level. The Delhi HC has further clarified that attribution of profit has to be made to the Indian PE to the extent of activities performed by them regardless of the profit/loss at the global entity level.^[2]

[1]    Refer ‘Permanent Establishment – Attribution of Profits When There Are Losses’, February 16, 2024,     https://www.azbpartners.com/bank/permanent-establishment-attribution-of-profits-when-there-are-losses/.

[2]    Hyatt International Southwest Asia Ltd. v. ADIT, [2024] 166 taxmann.com 466 (Delhi HC).