Profit attribution under the India-Finland DTAA fails where the foreign enterprise shows a global net loss.

Article 7(1) of the India-Finland DTAA permits attribution to a permanent establishment only to the extent profits exist in the foreign enterprise. Where the Tribunal found that the enterprise had a global net loss, no profit could be notionally attributed to the alleged permanent establishment in India. On those facts, the questions on permanent establishment and profit attribution did not justify interference, and the issue was answered against the Revenue.

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Issues: Whether, under Article 7(1) of the India-Finland Double Taxation Avoidance Agreement, any profits could be attributed to the alleged permanent establishment in India when the enterprise recorded a global net loss.

Analysis: Article 7(1) permits taxation in the other contracting state only to the extent profits are attributable to a permanent establishment. The attribution exercise therefore presupposes the existence of profits of the foreign enterprise. The Tribunal's finding that the enterprise had a global net loss meant that no profit could be notionally attributed to the alleged permanent establishment. On that basis, the questions concerning permanent establishment and attribution of profits did not warrant interference.

Conclusion: The issue was answered against the Revenue and in favour of the assessee; no profit was attributable to the alleged permanent establishment in India on the facts found.

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