Pervasive Oversight Constitutes Permanent Establishment Irrespective Length of Stay of Individual Employees Visiting India

INDIA – PE TAX ALERT

Lira Goswami (lira@ala-india.com), Associated Law Advisers

(with inputs from Subhash Bhardwaj, Vikram Saluja and Dhruv Mehta, Associated Law Advisers)

Pervasive Oversight Constitutes Permanent Establishment irrespective length of stay of individual employees visiting India.

India’s highest Court’s recent decision in Hyatt International Southwest Asia Ltd. vs Additional Director of Income Tax (2025 INSC 891) is a caution for foreign companies having significant operational control over Indian entities, including through long-term oversight services agreement or other similar arrangements.

The Supreme Court held that the long-term (20 years) Strategic Oversight Services Agreement (“SOSA”) executed by Hyatt International (a tax resident of the UAE), whereby Hyatt’s employees (from UAE) provided strategic oversight services in India to an Indian entity (operating the Hyatt hotels in Delhi and Mumbai) constituted a Permanent Establishment (“PE”) in India under the Indo-UAE Double Taxation Avoidance Agreement (“DTAA”) because Hyatt:

• exercised “pervasive” and “enforceable control” (through the SOSA) on strategic, operational and financial aspects of the Indian entity, including powers to appoint and supervise the General Manager and other key personnel; control pricing, branding, and marketing strategies; manage operational bank accounts and assign personnel to the hotel without requiring the owner’s consent;
• shared a percentage of the hotel’s revenues (as “strategic fees”), indicating its “active commercial involvement”; and
• the hotel itself, was the situs of primary business operations and was a fixed and identifiable physical location “at the disposal” of Hyatt for carrying on its business, under its supervision. Hence, the SOSA went “beyond mere consultancy” and indicated that the foreign company was an active participant in the core operational activities of the hotel in India, even though no single individual employee (visiting India) exceeded the 9 months threshold under Article 5(2)(i) of the DTAA.

The Court held that “the relevant consideration is the continuity of business presence in the aggregate – not the length of stay of each individual employee. Once it is found that there is continuity in the business operations, the intermittent presence or return of a particular employee becomes immaterial and insignificant in determining the existence of a permanent establishment”.

To sum up, significant operational control over a local entity in India can result in a PE if: (i) there is a specific, fixed, and identifiable physical location in India “at the disposal” of the foreign company; and (ii) its business is carried on through that place. In such cases, the relevant consideration is the “continuity of business presence in the aggregate” and not the stay of each individual employee of the foreign company in India. In Hyatt’s case, these attributes were found to be present, and therefore, the Court held that there is a PE in India under Article 5(1) of the DTAA.

As Article 5(1) of the DTAA is similar to the language in many other double taxation treaties entered into by India, including the Indo-US tax treaty, this decision would equally apply to other tax treaties, although, as emphasized by the Court, the determination whether a fixed place exists is a “fact-specific inquiry” which takes into account the foreign enterprise’s “right of disposal over the premises, the degree of control and supervision exercised, and the presence of ownership, management or operational authority.”