The UN Model Convention and various bilateral tax treaties contain provisions for existence of service permanent establishment (PE) in a case where an enterprise (from the Residence State) renders services in the Source State for a duration exceeding the specified threshold (Art. 5(3)(b) of the UN Model Convention 2001 stipulates 6-month threshold for existence of a service PE).

But, in a recent decision, the Indian Income Tax Appellate Tribunal (ITAT) confirmed existence of a UAE company’s service permanent establishment (PE) in India even though the UAE company’s presence in India did not exceed the threshold stipulated in the service PE provision contained in the tax treaty between India and the United Arab Emirates. For the reasons discussed below, that conclusion seems erroneous.

In the above-mentioned decision ...