Remote, but established: Why SC’s Hyatt ruling could redefine permanent establishment norms in India

In a landmark ruling, the Supreme Court in ‘Hyatt International Southwest Asia Ltd vs ADIT’ recently held that Hyatt’s remote, yet comprehensive, control over hotel operations in India under a strategic oversight services agreement constituted a fixed place permanent establishment (PE) under Article 5(1) of the India-UAE tax treaty.

The judgment reinforces the principle that economic substance prevails over legal form, highlighting that a sustained operational authority, even without legal ownership or physical presence, can give rise to a taxable nexus in India.

The dispute centred on whether Hyatt International Southwest Asia, a UAE tax resident, had PE in India and whether its income arising out of a strategic oversight services agreement was taxable here. The agreement provided Hyatt a 20 years’ renewable right to set strategy, enforce brand standards, appoint and control senior personnel, manage procurement and room pricing, operate the hotel’s bank accounts, and govern onsite operational protocols such as terms of guest admittance, pest control and garbage removal.

This continuous operational authority, which went well beyond a mere advisory role, coupled with a profit-linked remuneration structure, indicated Hyatt UAE’s active and substantive commercial involvement in onsite Indian operations, aligned with its global operating standards.

Article 5(1) of India-UAE tax treaty defines PE as a fixed place of business through which the business is wholly or partly carried on. This aligns with OECD and UN model conventions, which emphasise criteria such as stability, productivity and independence often assessed through place-at-disposal test. The apex court clarified that exclusive legal possession is not essential. Even shared or temporary access may suffice where core business functions are carried out.

Although Hyatt did not have legal title or formal occupancy of hotel premises, it exercised continuous and enforceable operational control onsite. It could deploy personnel without the owner’s consent, oversee day-to-day ops, open and operate the hotel’s bank accounts, and directly influence revenue generation. These rights met the place-at-disposal threshold, along with stability and functionality tests needed for determining a fixed-place PE in India.

The court stressed that substance and economic reality take precedence over contractual form. The judgment also distinguishes Hyatt’s case from the 2017 apex court ruling in ‘ADIT I New Delhi vs M/S E Funds It Solution Inc’, holding that the existence of a legally separate Indian affiliate (Hyatt India) does not, by itself, preclude PE attribution to a foreign enterprise where real-time functional control is retained at the parent level.

Historically, foreign entities have tried to steer clear of PE exposure in India by not maintaining physical office or direct employees here. But post-Hyatt, this approach may not work.

By recognising that operational control exercised remotely, but grounded in enforceable contractual rights, can give rise to a PE, the judgment aligns Indian tax laws with global trend. The judicial ruling effectively drives home the point that in today’s service-driven economy, the ability to exert decisive functional control may be more relevant than the existence of physical footprint.

Many global hospitality brands operate in India through agreements that grant them control over brand standards, staffing, marketing and pricing. Where such agreements confer sustained operational authority, profit-linked remuneration and enforceable rights at ground level, tax authorities may now assert the existence of PE and tax the attributable business profits.

In response, cross-border operators may be pressed to revisit their existing management contracts, shifting from profit-linked models, limiting control over staffing and operations, or restructuring their presence to ensure that substantive operational authority vests with Indian partner.

That said, some brands may consciously choose to retain operational control despite risk of PE taxation, considering it vital to safeguard brand consistency and competitiveness in the Indian market. From a litigation standpoint, the ruling bolsters the tax department’s ability to assert PE status in cross-border service arrangements.

Future disputes are likely to hinge on distinguishing permissible brand oversight from taxable operational control. Notably, the judgment also reaffirms that profits may be attributed to PE even if a foreign enterprise is globally loss-making, reinforcing the principle that taxability is determined by business presence in India, not global profitability.

In an era where global service businesses increasingly oversee local operations through remote means, the ruling signals India’s willingness to align its PE framework with the evolving dynamics of modern commerce and cross-border service delivery.

(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)



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