Indian Supreme Court Explains Fixed Place Permanent Establishment

On July 24, 2025, the Supreme Court of India delivered a landmark ruling on the concept of fixed place permanent establishment (PE) in India, under Article 5 of India-UAE tax treaty, triggering renewed attention on how the principles in the ruling would apply to a broader canvas of foreign enterprises that send employees to India for strategic planning and oversight services. Hyatt International Southwest Asia Ltd, [2025] 176 taxmann.com 783 (SC). The Supreme Court found that the non-resident taxpayer’s role, through the presence of its employees in India, was not merely restricted to providing strategic advisory services but extended to controlling day-to-day operations of the Indian operations. The non-resident taxpayer had established sufficient commercial nexus as well as exercised substantive control over core functions of the Indian operations, and had the hotel premises in India at its disposal in order to constitute fixed place PE.

As per Article 5(1) of the India-UAE tax treaty, the term “permanent establishment” means a fixed place of business through which the business of an enterprise is wholly or partly carried on. The fixed place PE rule in most of India’s tax treaties, is similar to the India-UAE tax treaty, and is, interestingly, also similar to the OECD Model Convention. Thus, the ruling will have broader implications when evaluating whether a foreign enterprise has a fixed place PE in India from a tax treaty interpretation perspective.

Brief Facts

Hyatt International Southwest Asia Ltd. (the taxpayer), a tax resident of UAE, entered into a Strategic Oversight Services Agreement (SOSA) with Asian Hotels Limited to provide strategic planning services and “know-how” to ensure development and operation of the hotel as a high-quality international full-service hotel. The non-resident taxpayer’s affiliate, Hyatt India Pvt. Ltd., incorporated in India, entered into a Hotel Operating Services Agreement (HOSA) with the hotel owner for carrying out the day-to-day operations of the hotel. The SOSA extended for a period of 20 years and the employees of the non-resident taxpayer visited and stayed at the hotel premises in India to ensure brand uniformity and quality compliance in terms of SOSA. Aggrieved by the Delhi High Court’s ruling that the non-resident had a fixed place PE in India, the non-resident taxpayer filed an appeal before the Supreme Court.

Key Highlights of Delhi High Court Ruling

The Delhi High Court held that the non-resident taxpayer’s role was not confined to high-level decision making but extended to substantive operational control and implementation. The non-resident taxpayer’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 hotel’s core functions. Such nexus satisfies the conditions necessary for the constitution of fixed place PE under Article 5(1) of India-UAE tax treaty.

Key Aspects of Supreme Court Ruling

The Supreme Court noted that the determination of fixed place PE involves a fact-specific inquiry to find out whether the foreign enterprise had the right of disposal over the place of business, what is the extent of the degree of control and supervision exercised, and whether there is any presence of ownership, management or operational authority.

Use of Premises in India
On the aspect of what constitutes a “place of business” under Article 5 of the tax treaty, the Supreme Court referred to its ruling in Formula One. Formula One World Championship Ltd. v. CIT [2017] 80 taxmann.com 347 (SC). From a disposal test perspective, the Supreme Court pointed out that the use of temporary or shared space is sufficient – exclusive possession is not essential – so long as business is carried on through such space. It is not necessary to have a formal right of use of a place, but what is crucial is that, in substance, the place of business should be at the disposal and should have been used for carrying on core business functions.

The Supreme Court held that, even though the employees did not have a fixed or a demarcated place within the hotel premises, the disposal test was met as the employees of the non-resident taxpayer had access to the premises of the hotel from where they exercised control over the core functions of the hotel operations. It also held that the core attributes of stability, productivity, and a degree of independence were met because the SOSA is for a 20-year duration and the non-resident taxpayer will have a continuous and functional presence at the hotel premises as per the agreement. The ruling has refocused attention on evaluating “disposal test” in the context of the commercial and operational realities of the arrangement.

Active Involvement in the Core Operations
Under the SOSA, the non-resident taxpayer had the power to appoint and supervise the general manager and other key personnel, implement HR and procurement policies, control pricing, branding and marketing strategies, manage operational bank accounts, and assign personnel (including its own employees) to the hotel without requiring the consent of the owner.

The Supreme Court held that the non-resident taxpayer’s role was not merely restricted to providing consultancy and advisory services from Dubai nor restricted to providing strategic guidance, brand compliance, and long-term planning. It was found that the role extended to substantive operational control and implementation over the core functions of the hotel operations, through its employees operating from the hotel premises in India. The Supreme Court clarified that the extent of control, strategic decision making, and influence exercised by the non-resident taxpayer clearly established that business of the non-resident taxpayer was carried on through its employees from the hotel premises satisfying the conditions under Article 5(1) of the India-UAE tax treaty.

Other Aspects

• The Supreme Court re-emphasized that legal form does not override economic substance in the determination of PE status. The Supreme Court observed that the fact that day-to-day operations were carried out by a separate legal entity i.e., Hyatt India Pvt. Ltd. (incorporated in India and taxable independently under the Indian tax law) under the terms of the HOSA, did not help the non-resident’s case in arguing that it did not have control over the day-to-day operations.
• As the non-resident taxpayer’s fees under the SOSA was to be calculated as a percentage of revenue and gross operating profit, it is clear that its income is linked to the financial and operational performance of the hotel and therefore, reflects an active commercial involvement of the foreign enterprise in the operations of the Indian enterprise.
• From a service PE perspective, it was observed that the relevant consideration is the continuity of business presence in aggregate and not the length of stay of each individual employee – the intermittent presence or return of a particular employee is irrelevant in determination of the existence of a PE.
• It is permissible to attribute profit to a PE in India even if the overall foreign enterprise has incurred losses – reinforcing the principle that taxability is based on business presence and not the global profitability of the enterprise.

Impact on Foreign Enterprises with Indian Operations

The Supreme Court ruling refocuses on the fixed place PE risk, in addition to service PE risk, arising from employees visiting the offices of affiliates in India for providing strategic advisory services or for ensuring brand compliance. Over time, as the frequency of visits increase, it is not uncommon for such employees’ scope of work to evolve from strategic advisory or brand compliance into operational control and implementation over the core functions of the Indian operations. It is inevitable for foreign enterprises to send employees to India to enforce brand compliance or provide strategic guidance to their Indian affiliates, but business realities will have to be carefully balanced by assessing whether the activities of their employees could potentially trigger fixed place PE.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Vishal Palwe is a director and Simran Joshi is a manager at Deloitte Haskins & Sells LLP, India. Copyright © 2025.

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