PE case law

India rules local distributor does not constitute a PE

On 14 August 2026, the Mumbai Income Tax Appellate Tribunal (ITAT) ruled that a United States (US)-based provider of financial information, news and market data services did not have a permanent establishment (PE) in India under the India-US tax treaty, despite distributing its products in India through a wholly owned subsidiary. The case considered whether the Indian subsidiary constituted a Dependent Agent PE (DAPE) or whether activities performed in India by employees of the US entity gave rise to a Service PE.

In reaching its decision, the Tribunal focused on the contractual and operational arrangements between the parties. It found that the Indian subsidiary purchased and distributed the products on a principal-to-principal basis, contracted with Indian customers in its own name, invoiced them directly and did not habitually conclude contracts, maintain stock or secure orders on behalf of the US entity. The Tribunal also noted that the foreign parent's oversight and control of the subsidiary were consistent with a typical parent-subsidiary relationship and were not, by themselves, sufficient to create a DAPE.

The Tribunal also rejected the existence of a Service PE. Although employees of the US entity spent time in India, the evidence indicated that their activities primarily involved oversight of the subsidiary, training, administrative support, information gathering and assistance with product-related functions. The tax authorities did not establish that these activities went beyond stewardship or auxiliary functions or otherwise fell within the treaty's Service PE provision. The Tribunal therefore concluded that the conditions for a Service PE were not met.

Accordingly, the Tribunal held that the US entity did not have a PE in India. It further observed that, even if the Indian subsidiary were assumed to constitute a DAPE, no additional profits could be attributed because the intercompany transactions had already been accepted as being at arm's length for transfer pricing purposes.

Other PE developments

Italy introduces new documentation and disclosure requirements for PE accounts

On 11 August 2026, Italy published Legislative Decree No. 148/2026, which introduces new documentation and disclosure requirements for Italian PEs of nonresident enterprises.

Under the Italian Income Tax Code, an Italian PE is required to prepare a separate income statement and balance sheet in accordance with the accounting standards applicable to comparable Italian resident entities. These accounts form the basis for calculating the PE's taxable income, subject to the adjustments required under Italian corporate income tax rules. Previously, however, there was no formal requirement to establish when the accounts had been prepared.

The decree now requires the PE's accounts to have a legally certain date by the deadline for filing the corporate income tax return for the relevant tax period. This may be achieved through an electronic timestamp or another legally recognized certification mechanism. The information contained in the accounts must also be reported in a dedicated schedule within the corporate income tax return.

The new requirements apply to the tax period that includes 31 December 2026 and to subsequent tax periods. Therefore, calendar-year taxpayers will first apply the requirements to the 2026 tax period and the related return filed in 2027. The changes are limited to the documentation and disclosure of PE accounts and do not alter the substantive rules governing the determination of profits attributable to an Italian PE.