This case focuses on whether Samsung Electronics Co. Ltd., a South Korean company (“Samsung Korea”), had a Permanent Establishment (PE) in India under the India-Korea Double Taxation Avoidance Agreement (DTAA). The question arose because Samsung Korea had sent some of its employees to work with its Indian subsidiary, Samsung India Electronics Pvt. Ltd. (“SIEL”).
The Indian tax authorities claimed that these seconded employees created a PE for Samsung Korea in India. They argued that the employees’ presence amounted to:
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A Fixed Place PE (using office space in India),
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A Dependent Agent PE (employees acting on behalf of Samsung Korea),
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Or a Service PE (providing services in India that generate income).
What the Law Says:
Under Article 5 of the India-Korea DTAA, a PE means a fixed location where a foreign company conducts its business or an agent in India who has the authority to act on behalf of the foreign company. A Service PE can arise if employees provide core business services for a certain period.
Key Findings:
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Role of the Employees:
The employees seconded to India worked only for the Indian subsidiary, SIEL. Their tasks were supportive in nature — like market research and helping with pricing strategies. They did not perform the main business functions of Samsung Korea.
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Control Over Office Premises:
Samsung Korea did not control or manage the Indian office where these employees worked. Simply being physically present in the subsidiary’s office does not mean Samsung Korea had a fixed place of business in India.
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Authority to Act:
The employees did not have the power to sign contracts or make binding decisions on behalf of Samsung Korea. This rules out the possibility of a Dependent Agent PE.
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Salary and Tax Payment:
Salaries were paid and taxed by SIEL in India, showing that these employees were essentially employed by the Indian company. Any money sent back to Korea was just a convenience and did not change this fact.
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Nature of Services Provided:
Since the employees provided only auxiliary and supportive services, they did not create a Service PE under the treaty’s terms.
Court Decision:
The Income Tax Appellate Tribunal (ITAT) sided with Samsung Korea, saying no PE existed. The Delhi High Court agreed, confirming that merely seconding employees to an Indian subsidiary does not create a PE for the foreign parent company, if those employees:
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Work only for the subsidiary,
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Do not have authority to act for the foreign company,
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Are not performing core income-generating business functions.
Why This Matters:
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It prevents double taxation where the same income is taxed in both India and Korea.
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It clarifies that foreign companies are not automatically liable to Indian tax just because their employees work in India through a subsidiary.
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It respects the principle that taxation rights depend on actual control, business activity, and authority, not just physical presence.
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It provides legal certainty to companies operating internationally, encouraging foreign investment.
Final Takeaway:
The Delhi High Court’s ruling in Pr. CIT v. Samsung Electronics Co. Ltd. makes it clear that seconding employees to an Indian subsidiary does not create a Permanent Establishment under the India-Korea DTAA unless those employees perform core business activities or have authority to bind the foreign company. This decision upholds international tax principles and safeguards against unwarranted taxation, benefiting both foreign investors and Indian tax administration.
