Existence Of Dependent Agent Permanent Establishment (DAPE) Is Of No Tax Consequence, If Agent Is Paid Arm's Length Remuneration: ITAT

The bench of Pramod Kumar (Vice President) and Anikesh Banerjee (Judicial Member) held that unless it is shown that an agent has not been paid an arm's length remuneration by the assessee, the existence of a dependent agent permanent establishment (DAPE) is of no tax consequence in India and is wholly tax neutral.

The assessee- RGA International Reinsurance Company (RIRC), a company incorporated in and fiscally domiciled in Ireland, is engaged in the business of providing reinsurance services to its clients in India. The Assessing Officer (AO) opined that the business profits, embedded in the reinsurance premium received by the assessee from Indian entities, is taxable in India. The AO ruled that RGA India Services Pvt Ltd, a group entity of the assessee and a subsidiary of the Reinsurance Group of America, provided various vital and primary business functions and performed all critical support activities in India, including marketing support services. Thus, it held that RGA India constituted the fixed place permanent establishment (PE) of the assessee company in India. The AO also ruled that the RGA India constituted a dependent agent permanent establishment (DAPE) of the assessee. Therefore, the AO concluded that the assessee was liable to be taxed in respect of the business profits, arising out of the reinsurance premium received by it from the Indian insurance companies in India. The Dispute Resolution Panel (DRP) upheld the findings of the AO. Accordingly, the AO passed an assessment order, taxing the business profits embedded in the reinsurance premium received by the assessee, as business income.

Against this, the assessee filed an appeal before the ITAT.

The assessee- RGA International, submitted that it does not have any place of business operations in India and that it does not have any premises at its disposal. The assessee contended that RGA India is a separate legal entity having its own personnel, and that the services rendered by RGA India are preparatory and auxiliary in nature, and not core reinsurance services.

The ITAT noted that under Article 5(1) of the India-Ireland DTAA, a PE means a fixed place of business through which the business of an enterprise is wholly or partly carried on. Further, the Tribunal observed that the DRP had ruled that since the core business activities were conducted by RGA India, RGA India constituted the fixed place PE of the assessee in India. Further, the Tribunal took into account that it was not the case of the lower authorities that any particular premises were at the disposal of the assessee in India.

The Tribunal held that unless a particular place is at the disposal of the assessee, that place cannot be said to constitute the PE of the assessee. The Tribunal added that the core part of the reinsurance business is the assumption of risk, which had been done outside India; therefore, the reinsurance profit cannot be attributed to RGA India.

While observing that all activities carried out by RGA India were duly paid for by the asseseee, and that the transfer pricing assessment had accepted the said position, the ITAT ruled that there cannot be any further profit attribution for services rendered by RGA India.

Hence, the ITAT held that there was no fixed place permanent establishment of the assessee in India.

Referring to the decision of ITAT Mumbai in ADIT versus Asia Today Ltd (2021), the ITAT ruled that the existence of a dependent agent permanent establishment (DAPE) in India is wholly tax neutral. The ITAT observed that as long as an agent is paid an arm's length remuneration for the services rendered in India, nothing survives for taxation in the hands of the dependent agent permanent establishment. Therefore, the Tribunal reiterated that unless it is shown that the agent has not been paid an arm's length remuneration, the existence of a dependent agent permanent establishment is of no tax consequence and is wholly tax neutral.

"In view of these discussions, we hold that the assessee did not have a fixed place permanent establishment in India, that the question of assessee having a dependent agency PE is wholly academic in the sense that, as the law stands now, the existence of the DAPE is wholly tax neutral in India. Accordingly, the business profits earned by the assessee on account of the reinsurance business have no tax implications in India."

The ITAT thus allowed the appeal.

Case Title: RGA International Reinsurance Company Ltd. versus Assistant Commissioner of Income Tax International Taxation

Dated: 31.10.2022 (ITAT Mumbai)

Counsel for the Appellant/Assessee: PJ Pardiwalla, along with Jasmin Amalsadvala and Anish Thakkar

Counsel for the Respondent/ Revenue Department: Sunil Umap

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