Does a warehouse abroad create a permanent establishment?
It depends entirely on what the warehouse does for that business. Keeping a stock of goods purely for storage, display or delivery has historically fallen inside the carve-out, because it supports a business carried on elsewhere. Where the warehouse is the business — a distribution model whose whole proposition is holding stock close to customers and getting it to them quickly — it is not supporting anything, it is the activity itself, and the carve-out does not apply. The test is the activity's function within that enterprise's own business, so two identical buildings can reach opposite answers.
Is a liaison or representative office preparatory or auxiliary?
Often it is, and often what the staff actually do has drifted from what the office was opened to do. A genuine representative office that gathers information, receives enquiries and passes them to the principal is a strong case for the carve-out. Staff who negotiate price, agree delivery terms or settle the substance of a deal before it is signed elsewhere are doing something else. The label on the office, the intra-group services agreement and the registration under which it was opened do not decide the question; the emails, calendars and authority limits do.
What documents prove our office only does support work?
The useful evidence is contemporaneous and specific to what the people there do: job descriptions that match the actual roles, written limits on signing and pricing authority, the approval trail showing where decisions were taken, correspondence with customers, and the office's own reporting lines. A description of the office drafted for the purpose of the file carries much less weight than records made in the ordinary course. Because the carve-out is tested on what is actually done, and done period by period, the evidence has to be capable of being produced for each year rather than assembled once when a question arrives.
Can we split activities between group companies to stay exempt?
This is specifically anticipated. Where closely related enterprises carry on complementary functions at the same place, or a single enterprise divides its own activity into slices that each look supporting, the activities can be looked at together rather than one at a time. Assessed as a whole, the combined operation is often a cohesive business rather than support for one carried on elsewhere. The practical effect is that a group cannot establish its position by examining each company's activity in isolation, and a structure built on that reading tends to fail at the first examination.
Our office is auxiliary, so can we still have a PE?
Yes. The carve-out answers one question only: whether a fixed place of business creates a permanent establishment. A separate rule looks at people. Someone who habitually plays the principal role in bringing about the conclusion of contracts in the enterprise's name can create a permanent establishment whatever the status of the premises they sit in. So an office can be genuinely supporting and the enterprise still have a permanent establishment through the activity of a person there, or of an agent acting for it. The two questions are answered separately and both have to be answered.
Who has to prove the activity is auxiliary?
Formally that depends on the procedure of the country asking, but in practice the enterprise claiming the carve-out is the party holding the facts and it is the one asked to explain them. An authority can see the premises, the staff and the local costs; the argument that the activity supports a business carried on elsewhere can only be made from the enterprise's own records. That is why the position is better settled and documented while the activity is running, rather than reconstructed from memory years later when the people involved have moved on.
Do NRIs pay tax on money sent to India?
Sending your own funds to India is a transfer of capital, not income, so the remittance itself is not taxed. What is taxable is income the money then earns in India — interest, rent, capital gains — under the rules for the account type it sits in. Sending money out of India is the direction that needs certification before the bank will act. See NRE, NRO and FCNR accounts.
Is "fund transfer pricing" the same thing as transfer pricing?
No — and if you came here to calculate FTP, this is not it. Fund transfer pricing is a bank's internal allocation of funding costs and benefits between its own business units, a treasury and asset-liability management discipline used to measure branch or product profitability. Tax transfer pricing is about prices between legally separate related parties across borders, and about which country taxes the resulting profit. The words overlap; the fields do not. See our transfer pricing work.
