1          Introduction

As discussed in Part 1 of this mini-series on transactions between permanent establishment and head office, for the purpose of The Income Tax Act, 1961 (“the Act”), there cannot be a legally valid transaction between a head office and a permanent establishment. That is the case because a permanent establishment as well as the head office belong to the same enterprise (legal entity). But, as per Sec. 90(2) of the Income Tax Act, 1961 (“the Act”), the provisions of the Act prevail over an applicable tax treaty to the extent the former are more beneficial for a taxpayer.

Thus, an applicable tax treaty could provide a benefit for a taxpayer.