Permanent establishment taxation: cross border sales and similar activities taxed as PE profits; head office deductions limited by prescribed tests. The Protocol clarifies that amounts payable as penalties are not "tax"; enterprises covered by the proviso to Article 5(j) will be taxed under enterprise ... Summary
Permanent establishment taxation: cross border sales and similar activities taxed as PE profits; head office deductions limited by prescribed tests.
The Protocol clarifies that amounts payable as penalties are not "tax"; enterprises covered by the proviso to Article 5(j) will be taxed under enterprise provisions rather than under royalties or independent personal services. It provides that profits from sales or similar business activities conducted in the other State may be taxed as part of a permanent establishment's profits. For PEs in India, deduction for head office and executive administrative expenses is limited to the least of three specified measures, with a special averaging rule where adjusted total income is a loss, and key terms are defined by reference to the Indian Income tax Act.
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