Latest news with #Hyatt
Hindustan Times
15 hours ago
- Business
- Hindustan Times
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. Operational control enough to tax foreign firms in India, says SC The ruling , which has significant implications for MNCs operating in India, came as a 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 long-standing 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. At the centre of this case was a Services and Operating Services Agreement (SOSA) signed by Hyatt with hotel owners in India, under which the Dubai-based entity provided hotel advisory and consultancy services. Hyatt contended that it operated solely from Dubai, was not obliged to station staff in India, and only permitted occasional visits by its personnel to Indian hotels. It further argued that the SOSA contained no clause allowing it to conduct business from within the hotels, nor did it maintain any office or branch in India. But the top court rejected these submissions, holding that the 'disposal test' for identifying a PE did not require exclusive possession or formal rights over premises, but a fact-specific inquiry into the foreign enterprise's ability to conduct core business functions from the premises. 'The appellant's contention that the absence of an exclusive or designated physical space within the hotel precludes the existence of a PE, is misconceived, said the court, relying on its earlier precedent in Formula One World Championship Ltd ()2017. 'Temporary or shared use of space is sufficient, provided business is carried on through that space,' it added. In this case, the bench found that Hyatt exercised 'pervasive and enforceable control' over the hotel's strategic, operational, and financial aspects. This included the authority to appoint and supervise key personnel, implement HR and procurement policies, control pricing and branding, operate bank accounts, and assign staff to the hotel without the owner's approval. 'These rights go well beyond mere consultancy and indicate that the appellant was an active participant in the core operational activities of the hotel,' said the court, noting that Hyatt's control extended to everyday affairs and not just high-level decisions. Amit Baid, Head of Tax at BTG Advaya law firm, said that the ruling could set a precedent for PE determinations in cases involving frequent employee travel to India. 'The judgment provides a clear conceptual framework for determining PE thresholds -- frequent, regular visits by employees, rather than the duration of individual stays, is the key factor. Once continuity of business presence is established, the return or rotation of individuals becomes irrelevant; and operational control, oversight, and income linked to core functions establish a commercial nexus necessary for a PE,' Baid added. The judgment meanwhile stressed that the 20-year duration of the agreements, combined with continuous and structured involvement of Hyatt's executives in India, satisfied the three-pronged test of stability, productivity, and dependence that governs the recognition of a PE. Further, the court ruled that even though no single Hyatt employee exceeded the 9-month threshold under Article 5(2)(i) of the DTAA, the aggregate and continuous presence of various employees, verified through travel logs and operational duties, fulfilled the requirement of a PE. The court clarified that the legal form of presence is secondary to the economic substance of business functions being carried out in India. 'The appellant's ability to enforce compliance, oversee operations, and derive profit-linked fees from the hotel's earnings demonstrates a clear and continuous commercial nexus and control with the hotel's core functions,' the bench said, calling the hotel premises the 'situs of the appellant's primary business operations.' Importantly, the Supreme Court clarified that under the India–UAE Direct Taxation Avoidance Agreement, the lack of a specific article allowing taxation of Fees for Technical Services (FTS) would not override the existence of a PE under Article 5(1), particularly where core business functions are carried out through a fixed place.
Deccan Herald
a day ago
- Business
- Deccan Herald
Foreign companies with permanent establishment taxable in India: Supreme Court
A bench of Justices J B Pardiwala and R Mahadevan dismissed the appeals by Hyatt International Southwest Asia Ltd, while affirming the findings of the Delhi HC that Hyatt had a fixed place PE in India within the meaning of Article 5(1) of the DTAA (Double Tax Avoidance Agreement).
Time of India
a day ago
- Business
- Time of India
SC says Hyatt's India operations are taxable under PE norms
In a ruling that has significant implications for multinational companies operating in India, the Supreme Court Thursday held that UAE-headquartered Hyatt International Southwest Asia , which provides hotel consultancy and advisory services in India as part of its business operations, has a fixed place Permanent Establishment (PE) in India for tax purposes. Upholding a Delhi High Court order that ruled against the hotel company, a bench comprising Justices J.B. Pardiwala and R. Mahadevan dismissed various the appeals by Hyatt International Southwest Asia Ltd, while affirming the findings of the HC that Hyatt had a fixed place PE in India within the meaning of Article 5(1) of the DTAA, and that, the income received under the strategic oversight services agreements (SOSA) is attributable to such PE and is, therefore, taxable in India. Explore courses from Top Institutes in Please select course: Select a Course Category Public Policy Leadership PGDM Finance Design Thinking Cybersecurity CXO Technology Digital Marketing Data Science Artificial Intelligence Healthcare MBA Project Management Operations Management Data Science Degree Management Others others healthcare Product Management MCA Skills you'll gain: Duration: 12 Months IIM Calcutta Executive Programme in Public Policy and Management Starts on undefined Get Details Skills you'll gain: Economics for Public Policy Making Quantitative Techniques Public & Project Finance Law, Health & Urban Development Policy Duration: 12 Months IIM Kozhikode Professional Certificate Programme in Public Policy Management Starts on Mar 3, 2024 Get Details The top court said that was undisputed that Hyatt's executives and employees paid frequent and regular visits to India to oversee operations and implement SOSA. 'The finding of the assessing officer, based on travel logs and job functions, establish continuous and coordinated engagement, even though no single individual exceeded the 9-month stay threshold,' according to SC Under Article 5(2)(i) of the agreement between the government of India and the United Arab Emirates for avoidance of double taxation (DTAA) Under Article 5(2)(i) of the DTAA, the relevant consideration is the continuity of business presence in aggregate – not the length of stay of each individual employee. Once it is found that there is continuity in the business operations, the intermittent presence or return of a particular employee becomes immaterial and insignificant in determining the existence of a PE, Justice Mahadevan, writing for the bench stated, adding the HC was correct in concluding that Hyatt's role was not confined to high-level decision making, but extended to substantial operational control and implementation. The Dubai-based company's ability to enforce compliance, oversee operations, and derive profit-linked fee from the hotel's earnings, demonstrate a clear and continuous commercial nexus, and control with the hotel's core functions, the judgment said, adding that this nexus satisfied the condition necessary for the constitution of a fixed place of PE under Article 5(1) of the India – UAE DTAA. The top court further said that 'the extent of control, strategic decision-making, and influence exercised by the appellant clearly establish that business was carried on through the hotel premises, satisfying the conditions under Article 5(1)…the hotel itself was the situs of the appellant's primary business operations, carried out under its direct supervision and aligned with its commercial interests.' Welcoming the ruling, Amit Baid of BTG Advaya said that "the judgment provides a clear conceptual framework for determining PE thresholds—frequent, regular visits by employees, rather than the duration of individual stays, is the key factor; once continuity of business presence is established, the return or rotation of individuals becomes irrelevant; and operational control, oversight, and income linked to core functions establish a commercial nexus necessary for a PE. The ruling could set a precedent for PE determinations in cases involving frequent employee travel to India." The judgement establishes that substantive operational involvement, such as orchestrating policies, directly overseeing operations, and controlling implementation, will be closely scrutinised when determining the existence of a fixed place PE in India, said Varun Gakhar, Research Associate at Janssen-Sanghavi & Associates. 'In essence, oversight that crosses into operational control may trigger domestic tax exposure under Indian tax treaties. This judgement will have to be analysed closely by multinationals, as determining whether a PE exists is a very fact- and circumstance-specific question,' he added. In 2008, Hyatt had entered into two strategic oversight services agreements with Asian Hotels Ltd. One was in respect of hotel Hyatt Regency, Delhi owned by Asian Hotels, and the other pertained to a hotel in Mumbai. Under the terms of the agreement, Hyatt agreed to provide strategic planning services and "know-how" to ensure that Hyatt Regency was developed and operated as an efficient and a high quality international full-service hotel. Asian Hotels was thereafter reorganised and its name was subsequently changed to Asian Hotels (North) Ltd., which continued to own Hyatt Regency. For the Assessment Year 2009-10, Hyatt filed its return of income declaring 'Nil' income and claiming a refund of around Rs 88 lakh. The Assessing Officer had passed assessment orders for 2009-18, holding that Hyatt's activities constituted a business connection under Section 9(1)(i) of the Income Tax Act; a PE under Article 5 of the DTAA; royalties and fees for technical services under both the Income Tax Act and DTAA. However, Hyatt asserted that its income was not taxable under the Act as there was no specific Article under the DTAA for taxing Fees for Technical Services. It further stated that it did not have any fixed place of business, office, or branch in India, and that the presence of its employees in India during the relevant previous year did not exceed the nine-month threshold under Article 5(2) of the DTAA. Therefore, the appellant claimed that it did not have a PE in India and that its business income was not taxable under Article 7 of the DTAA. The Income Tax Appellate Tribunal (ITAT) in December 2019 and then the HC rejected Hyatt's contention that it did not have a PE in India.
Mint
a day ago
- Business
- Mint
Hyatt faces India tax blow as Supreme Court confirms ‘Permanent Establishment' status
In a crucial ruling with broad implications on how multinational companies are taxed in India, the Supreme Court on Thursday held that UAE-based Hyatt International Southwest Asia, which provides hotel advisory services in India, has a taxable Permanent Establishment (PE) in the country. A bench comprising Justices J.B. Pardiwala and R. Mahadevan upheld Delhi High Court's earlier decision, which had ruled that Hyatt's Indian PE must be treated as a distinct taxable entity. The judgment is significant as it clarifies that multinational companies can be taxed in India if they exercise substantial operational control here, even without long-term employee presence. The court held that a PE should be treated as a separate taxable entity, meaning India can tax profits attributable to the PE even if the foreign parent company incurs overall global losses. The apex court noted that Hyatt's executives and employees made frequent and regular visits to India to supervise operations and implement business decisions. While no single employee stayed beyond the nine-month threshold under Article 5(2)(i) of the India-UAE Double Taxation Avoidance Agreement (DTAA), the assessing officer's findings proved a continuous and coordinated business presence. Hyatt had approached the Supreme Court challenging the September 2024 Delhi High Court Full Bench judgment, which had held that Hyatt's Indian PE was taxable regardless of the company's global profitability. The top court agreed with the High Court's conclusion that Hyatt's role extended beyond high-level decision-making to substantial operational control and implementation in India. Its ability to enforce compliance, oversee hotel operations, and earn profits linked to hotel revenues established a clear and continuous commercial nexus with its Indian operations, satisfying the fixed place PE conditions under the DTAA. Hyatt had argued that under Article 7 of the India-UAE DTAA, India could tax the PE's profits only if the foreign enterprise as a whole was profitable. However, tax authorities maintained that the PE should be assessed as a separate and independent entity, regardless of the parent company's global financial performance. 'The judgment provides a clear conceptual framework for determining PE thresholds—frequent, regular visits by employees, rather than the duration of individual stays, are the key factor. Once continuity of business presence is established, the return or rotation of individuals becomes irrelevant. Operational control, oversight, and income linked to core functions establish the commercial nexus necessary for a PE. This ruling could set a precedent for PE determinations in cases involving frequent employee travel to India,' said Amit Baid, head of tax at BTG Advaya, a disputes and transactional law firm. Under Double Taxation Avoidance Agreements (DTAAs), a Permanent Establishment (PE) is a fixed place of business, such as a branch, office, factory, or dependent agent, through which a foreign company operates in another country. Article 5 of the India-UAE DTAA defines what constitutes a PE, including fixed place PE, agency PE, and service PE. Having a PE in India gives Indian tax authorities the right to tax profits attributable to that PE, treating it like a local entity, irrespective of the parent company's global results. Article 7 allows India to tax only the profits linked to the PE's activities, calculated as if it were an independent enterprise. Foreign enterprises without a PE in India are not taxed here on business profits. The Hyatt PE taxation case originated when Indian tax authorities assessed that Hyatt had enough presence in India to be taxed, as its executives frequently visited and controlled hotel operations, despite no single employee staying long-term. These assessments dated back to 2011 onwards. Hyatt challenged the findings in the Delhi High Court in 2020, arguing that under the tax treaty, India could tax the PE only if the global enterprise was profitable. In January 2023, a Division Bench of the High Court referred the matter to a Full Bench for deeper examination. In September 2024, the Full Bench ruled that Hyatt did have a PE in India because of its continuous operational involvement and held that the PE should be taxed as a separate entity. Hyatt then appealed to the Supreme Court, leading to Thursday's ruling.
Time of India
2 days ago
- Business
- Time of India
Supreme Court dismisses Hyatt International Southwest Asia's appeal in tax case
Tired of too many ads? Remove Ads The particulars of the SC order: It is undisputed that the appellant's executives and employees paid frequent and regular visits to India to oversee operations and implement these so and so. The finding of the assessing officer, based on travelogues and job functions, established continuous and coordinated engagement, even though no single individual exceeded the nine month stay the threshold under article 521. The relevant consideration is continuity of business presence in aggregate, not the length of the stay of each individual employee. Once it is found that there is continuity in the business operations, the intermittent presence or return of a particular employee becomes immaterial and An insignificant in determining the existence of a permanent establishment. The High Court was correct in concluding that the appellant's role was not confined to high level decision making, but extended to substantial operational control and implementation. The appellant's ability to enforce compliance, oversee operations, and derive profit linked fee from the hotel's earnings, demonstrate a clear and continuous commercial nexus, and control with the hotel's core functions. This nexus satisfies the condition necessary for the constitution of a fixed place. Permanent establishment. In view of the foregoing analysis, we affirm the finding of the High Court that the appellant has a fixed place of permanent establishment in India within the meaning of article 51, and that the income received under the zone so attributable to such be and is therefore taxable in India. In a ruling that has significant implications for MNCs operating in India through permanent establishment (PE), the Supreme Court Thursday held that the income of Indian PE of UAE-headquartered Hyatt International Southwest Asia would be taxed as a distinct entity even if the global entity incurred court said there is no merit in Hyatt 's appeals. The company had argued that since it had suffered a loss at the entity level, no income should be attributable to the PE in India.A bench led by Justice JB Pardiwala dismissed the appeals filed by Hyatt against the Delhi High Court decision which held that the Indian PE of Hyatt International must be treated as a distinct entity for tax apex court said that on the basis of all the materials available on record, Hyatt is a permanent establishment, so tax procedures are applicable to it.
