Implication of Business Connection and Permanent Establishment

Abstract

The concept of permanent establishment ("PE") has gained considerable importance with the growing trend of globalization. The concept of a PE is important for several Articles of the Convention and the concept or its cognate, also appears in the domestic laws of some countries. For example, in India we have the concept of ‘business connection’ ("BC").BC is the Indian equivalent of PE. It is much wider in connotation and has been very effectively used by the revenue authorities to tax the income of non-residents in India. Despite being referred to in the Income Tax Act, 1961 ("ITA"), the term was not defined till the Finance Act, 2003 inserted a somewhat cryptic explanation to Section 9 of the Indian Income Tax Act, 1961. This paper is an attempt to understand the concept of business connection and permanent establishment and its implications.