Permanent Establishment arising out of "Exploration of Natural Resources"

Permanent Establishment arising out of “Exploration of Natural Resources”

In the absence of a specific clause pertaining to “exploration for mineral oils, natural resources” in DTAA between India and other countries in Article 5 as an exemption from being a Permanent Establishment (“PE”) through duration, the income arising from providing services related to “exploration of natural resources” in high seas or land shall be considered as a “business income” in India.  

Klaus Vogel in his Commentary on Double Taxation Conventions, Third Edition(para 44, pg294)states with regard to Article 5(2),while referring to exploration of natural resources as mentioned at subparagraph (f) , that since this sub para does not include exploration and only refers to extraction of natural resources, and since it has not been possible to arrive at a common view on the basic questions of attribution of taxation rights and of the qualification of the income from exploration activities, the contracting States may agree upon the insertion of specific provisions.

They may agree, for instance, that an enterprise of a contracting State, as regards activities of exploration of natural resources: (a) shall be deemed not to have a permanent establishment in that State; or (b) shall be deemed to carry on such activities through a permanent establishment in that other state; or (c) shall be deemed to carry on such activities through a permanent establishment in that other State if such activities last longer than a specified period of time.

For e.g. DTAA between India-Singapore
The term "permanent establishment" includes especially :

(f)

a mine, an oil or gas well, a quarry or any other place of extraction of natural resources ;
(j)

an installation or structure used for the exploration or exploitation of natural resources but only if so used for a period of more than 120 days in any fiscal year.

Notwithstanding the provisions of paragraphs 3 and 4, and enterprise shall be deemed to have a permanent establishment in a Contracting State and to carry on business through that permanent establishment if it provides services or facilities in that Contracting State for a period of more than 183 days in any fiscal year in connection with the exploration, exploitation or extraction of mineral oils in that Contracting State.
DTAA between India-USA
The term "permanent establishment" includes especially :

(j)

an installation or structure used for the exploration or exploitation of natural resources, but only if so used for a period of more than 120 days in any twelve-month period ;

DTAA between India-Japan
The term 'permanent establishment' includes especially :

(f)

a mine, an oil or gas well, a quarry or any other place of extraction of natural resources ;
(j)

an installation or structure used for the exploration of natural resources, but only if so used for a period of more than six months.

DTAA between India-UK
The term "permanent establishment" shall include especially :

(h)

a mine, an oil or gas well, quarry on other place of extraction of natural resources;
(i)

an installation or structure used for the exploration or exploitation of natural resources;

activities of that nature continue within that State for a period or periods aggregating more than 90 days within any twelve-month period





DTAA India-Netherlands
The term "permanent establishment" includes especially :

(f)

a mine, an oil or gas well, a quarry or any other place of extraction of natural resources ;
(i)

an installation or structure used for the exploration of natural resources provided that the activities continue for more than 183 days.

DTAA India-Saudia Arabia
The term "permanent establishment" includes especially :

(f)

a mine, a gas well, a quarry or any other place of extraction of natural resources.

The one between India and Saudi Arabia is an example in which exploration of natural resources is not covered.  However, the term used is extraction of natural resources.  But the same is not qualified by any specific duration. 

The Supreme Court in the latest judgment in Formula One has set out the test of  PE as ‘permanence test’, ‘business activity test’ and ‘disposal test’. The same test would also have to be applied for establishing a PE in India.

Comments

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