Latest news with #HyattInternationalSouthwestAsia
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Business Standard
6 days ago
- Business
- Business Standard
SC dismisses Hyatt International Southwest Asia's appeal in tax case
The Supreme Court on Thursday held that UAE-headquartered Hyatt International Southwest Asia, which provides hotel advisory services in India as part of its business operations, will be considered a Permanent Establishment (PE) in India for tax purposes. A bench of Justices JB Pardiwala and R Mahadevan upheld the Delhi High Court's decision, ruling that Hyatt's Indian PE must be treated as a distinct taxable entity. 'We affirm the findings of the High Court that the appellant has a fixed place PE in India within the meaning of Article 5(1) of the Double Taxation Avoidance Agreement (DTAA), and that the income received under the SOSA (Strategic Oversight Services Agreement) is attributable to such PE and is therefore taxable in India,' the order said. The principal issue for the court to decide was whether Hyatt International Southwest Asia, a tax resident of the UAE, has a Permanent Establishment (PE) in India under Article 5(1) of the Indo–UAE DTAA, and consequently, whether its income derived under the SOSA is taxable in India. Hyatt International Southwest Asia (HISA) is a company incorporated under the Companies Law, Dubai International Financial Centre Law No 3 of 2006, in the United Arab Emirates. It is a tax resident of the UAE under Article 4 of the Agreement between the Government of India and the UAE for the avoidance of Double Taxation. The court also observed that under DTAAs, "the taxing rights of the source State over the business profits of a foreign enterprise are contingent upon the existence of a Permanent Establishment in the source country." The court said that HISA's submission that the daily operations were handled by Hyatt India, a separate legal entity, does not decisively support its case. 'It is well established that legal form does not override economic substance in determining PE status. The extent of control, strategic decision-making, and influence exercised by the appellant (HISA) clearly establishes that business was carried on through the hotel premises…' the judgment said. The court also 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. Foreign companies operating through Indian affiliates may now face possible taxation unless these strategic elements are addressed adequately, said Pallav Pradyumn Narang, Partner at law firm CNK. 'The judgment further states that global losses cannot shield India-sourced profits from taxation, and foreign firms with Permanent Establishments in India must now clearly attribute Indian income to such PEs. The court has flagged a conflict with its earlier ruling in the case of Nokia and has referred this matter to a larger bench, signalling that past precedents on PE may soon be overturned,' he said. Rahul Sateeja, Partner at law firm DMD Advocates, said the Hyatt International judgment by the Supreme Court will have a chilling effect across industries where standardisation of services through oversight by foreign executives is inevitable. 'The Indian counterparts of foreign companies need to review their transactions and calibrate them at arm's length price to avoid taxability based on another apex court judgment in MasterCard, even if Hyatt International is pressed to hold the existence of a permanent establishment (PE),' he said. Meanwhile, Ankit Jain, Partner at law firm Ved Jain and Associates, said that one way for international hotel chains to mitigate this tax exposure is by setting up a dedicated entity in India to manage their local hotel operations. 'By doing so, the management and brand services can be routed through an Indian company, reducing the risk of triggering a PE and the resulting tax disputes. This structure also provides greater clarity and compliance for tax authorities and offers long-term stability for both the hotel chain and property owners operating under the brand,' he said.
Mint
6 days 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.
