Permanent Establishment

This article explains some relevant aspects regarding the establishment of a Swiss operational facility in India in the context of the agreement to the avoidance of the double taxation between India and Switzerland briefly: Double Taxation Avoidance Agreement (DTAA).

Tpyes of operational facilities

In principle the different operational facilities can be set up under the DTAA and can be divided up under the following headings:

• Stationary operational facilities
• Construction site (construction operational facilities
• Installation or assembly (production operational facilities)
• Supervision
• Letting of equipment (Betriebsstätten)
• Agency (-operational facilities)

The articles of the Swiss Indian agreement to the avoidance of the double taxation (DTAA) deal with cases in which a Swiss enterprise establishes a permanent establishment (PE) in India, as well as when an Indian company establishes a business in Switzerland.

Ordinarily one can assume that such Swiss enterprises establish a PE in India which meets the following criteria:

• There is a definite business location in India; 
• The business of the Swiss enterprise is led by such a business seat out;
• This branch office is only available to the Swiss enterprise; and 
• A certain degree of resistance is connected at and with this business seat. 

The OECD guidelines provide that the existence of a stationary business seat as a rule would be interpreted for at least six months as a permanence. This, however, cannot as a rule of thumb looked at because this could appear depending on line of business and actual condition differently. Article 5 (2) contains an exemplary listing of stationary PE for example: as the seat of the business performance, a branch office, offices, storage places, as well as operational facilities for the construction, installation, assembly or supervision.

The following businesses can form a PE according to the DTAA, if they last more than six month:

• Construction site, or
• Construction, assembly or installation project, or
• Control and supervision, if it is connected with a construction site, assembly activity or the like.

In the case that the period from six months is exceeded, the PE applies as being founded from the beginning of the project. In the inversion of an argument the projects which don't last longer than six month normally aren't regarded as PE in this meaning.

Leasing of equipment

Article 5 (3) of the DTAA stipulates that an enterprise, which offers services or facilities, or provides plants and machines in connection with the search for, the promotion or the mining of mineral oil in India is regarded as a PE in India.

Article 5 (5) of the DTAA stipulates, which is commonly known as a “Dependent agent PE (dependent agents). According to this article a person proceeding in India can form a PE for a Swiss company provided that this person

• has the authority to conclude contracts in the name of the Swiss enterprise (excepted are possible) or
• has had stock passed, which is delivered for the Swiss enterprise or
• receives orders (almost entirely) for Swiss enterprise or other enterprises which are connected to this one.

Exception of a Permanent Establishment

The article 5 (6), however, describes exceptions in which an independent agent in the practice of his ordinary business activity doesn’t do any PE for Swiss enterprise if the business relations between this agent and the enterprise are completely independently

Article 5 (4) of the DTAA describes an essential exception, if company representations only deal with preparing or supporting activities. This one does not lead to the foundation of a PE. This paragraph considers activities and installations which for this purpose

• taking care of the warehouse with a stock is exclusively used by other enterprises as a store, exhibition, for the delivery or processing at the disposal to look after a goods depot of the enterprise, or
• Buying goods or collecting etc. information.

To be considered as exception under the DTAA, it has to be guaranteed by decisive importance, though, that the Indian business presence deals exclusively with the aforementioned activities.

How we can help you

Please contact our expert consulting team to discuss your individual business strategy in regard to the foundation of a Permanent Establishment of your Swiss company in India. Counselhouse has got the experience and is leveraging a strong partner-network of consulting companies across Europe and India to support you through all single phases of your expanding business to India