Itr of foreign co with no pe

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

16 January 2015 Hi,
Our parent company, which has no PE in India, has received notice from Delhi to file returns in India from FY10-11. They have no PE in india nor do they have any transaction in India . All they receive is management fees from Indian subsidiary on which TDS is deducted as per treaty. Please let me know :
1. If they have any obligation to file return in India?
2. If so under which head of Income?
3. Do they need to file any audit or TP report?

Can Some body help...
Thanks

prathiba

prathiba (Expert)
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16 January 2015 Hi

Income received by a Non Resident by virtue of business connection in India are deemed to accrue or arise in India, irrespective of its residential status. An NR is treated to have a Permanent Establishment in India , if it has a branch/sales office etc; which habitually exercises an authority to conclude contracts on behalf of the principal.

Hence, in respect of the income attributable to business connection in India, the Department might have send notice for filing IT return to the Parent Company. The filing to be based on the contents of the IT Notice

Rupesh Jain

Rupesh Jain (Expert)
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16 January 2015 management fee will be consider your parent company income in india and file to its ITR for that income.
you are subsidiary company then you are PE for your parent company.
your parent company file to itr.

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Querist : Anonymous

Querist : Anonymous (Querist)

02 February 2015 Thanks both for your reply.

However, In our case, subsidiary co. does perform sales functions but never concludes contract on behalf of parent Co. Further, subsidiary co is seperate legal entity registered in India.

Is it that, all foreign parent Co. becomes PE in India merely by having subsidiary Co. in India. Can you please throw some more light on my queries...

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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02 August 2024 Given the situation where a foreign parent company with no Permanent Establishment (PE) in India has received a notice to file income tax returns in India, here are detailed responses to your queries:

### 1. **Obligation to File Return in India:**

- **Requirement to File:**
- **No PE in India:** If the foreign parent company does not have a PE in India and its only connection to India is receiving management fees from an Indian subsidiary with TDS deducted as per the Double Taxation Avoidance Agreement (DTAA), it generally does not have an obligation to file a return in India.
- **Notice to File Return:** Receiving a notice to file a return might indicate that the tax authorities need clarification or additional documentation to confirm the company’s status. However, if the company truly does not have any income that is taxable in India, it should not be liable to file a return.

### 2. **Head of Income:**

- **If Required to File:**
- **Income Head:** In the context where a foreign company with no PE in India receives income such as management fees from an Indian subsidiary, this income typically falls under the head "Income from Other Sources" or "Income by way of Fees for Technical Services" (FTS), as per the Indian Income Tax Act and the applicable DTAA.

### 3. **Audit or Transfer Pricing Report:**

- **Audit Requirement:**
- **No PE:** Since there is no PE in India, generally, there is no requirement for an audit under Section 44AB.
- **Transfer Pricing Report:** Transfer Pricing regulations apply if there is a PE or if transactions fall under the Transfer Pricing provisions. However, if the only connection is the receipt of management fees with TDS, the requirement for a Transfer Pricing report may not apply.

### Additional Points:

- **PE Determination:**
- **Subsidiary Company:** Merely having a subsidiary in India does not automatically create a PE for the foreign parent company. A PE is defined by having a fixed place of business in India or significant activities being carried out in India that amount to a PE under the India tax laws and the DTAA.
- **Separate Legal Entity:** The subsidiary company is a separate legal entity and does not automatically create a PE for the parent company. The activities of the subsidiary must be examined in context with the PE criteria.

### Recommended Actions:

1. **Respond to the Notice:**
- **Clarify Position:** Provide a detailed response to the tax authorities clarifying that the parent company does not have a PE in India, and its only connection is receiving management fees with appropriate TDS deduction.

2. **Documentation:**
- **Submit Proof:** Submit relevant documents proving that the company’s only income from India is management fees, and no other transactions or business activities occur in India.

3. **Consult a Tax Professional:**
- **Legal Advice:** Seek advice from a tax professional or legal advisor who specializes in international taxation and DTAA to ensure compliance and proper handling of the situation.

4. **Review DTAA:**
- **Check Treaty Terms:** Review the specific provisions of the DTAA between India and the parent company's country to ensure all treaty benefits and obligations are being correctly applied.

Handling such notices carefully and ensuring all responses are well-documented can help avoid unnecessary compliance issues and potential disputes with the tax authorities.