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INTERNATIONAL - INDIA: Highest court rules that three days per year is enough to create permanent establishment

On 24 April 2017, the Apex Court (the Supreme Court in India) issued an important tax ruling relating to the creation of a permanent establishment (PE) by a UK sporting company despite limited time on site in India. The case related to the UK company holding the commercial rights to stage, host and promote the Indian Grand Prix in 2011 through to 2013 at a location owned by an Indian company.

The UK commercial rights holder had granted the right to host, stage and promote the Indian Grand Prix over a three day period each year to a local Indian company, which also owned the racing circuit. Under the contract, the Indian company granted rights, such as advertising, hospitality etc, to other members of the UK company's group, to be exploited at the racing circuit during the period of the Grand Prix.

The Delhi High Court had previously held that the host fee paid by the Indian company to the UK company was not in the nature of a royalty and that the UK company had a fixed place PE in India. Whilst the characterisation of the host fee was not contested before the Apex Court, the existence of a PE was upheld based upon the following observations:

• The racing circuit constituted a fixed place from which a business/economic activity was conducted.

• The various agreements between the Indian company and the UK company (together with its affiliates) could not be looked at in isolation. It was considered necessary to read these together to identify the real transaction between the parties, which in turn provided an answer to the question of who had real and dominant control over the event and whether the circuit was at the disposal of the UK company. In the opinion of the Court, all constituents of the event were controlled by the UK company.

• The commercial rights were exploited by the UK company as a result of the race in India and the income was entirely generated from the conduct of the race there, with all revenues flowing to the UK company and its affiliates.

In the Court's view, the facts pointed to the conclusion that the UK company had made its earnings in India through the racing circuit over which it had complete control during the event. The duration of the event and the number of days for which the UK company's personnel had access to the circuit would not make any difference.

This ruling has a wide reaching impact for the sports sector, and other sectors such as the entertainment industry, as it sets out a precedent in India on short duration PEs.