Ahlawat & Associates

  For German SMEs eyeing India's booming market, the excitement of new revenues from a new India market entry can quickly turn into a compliance nightmare. Many companies unknowingly create a Permanent Establishment (PE) which is a taxable presence under the Indian law, without ever opening an office. A distributor who negotiates too freely, an engineer visiting too often, a subsidiary used the wrong way: each can silently trigger Indian corporate tax liability stretching back years, with penalties up to 200% (two hundred percent) of tax evaded. What Is a Permanent Establishment Under the India-Germany DTAA? The presence of a PE in India acts as a taxable nexus, triggering source-based taxation — it is the demarcation line between non-taxable and taxable presence. Under Article 5 of the India-Germany Double Taxation Avoidance Agreement (DTAA), in force since 1996, a PE arises through a fixed place of business, a dependent agent, sustained service delivery, or a construction proje...