Not just contractual structures, but details on LinkedIn profiles could also come into play when tax authorities determine whether a foreign entity has a ‘permanent establishment’ (PE) in India. A recent ruling in the IMAX Theatre Services cases illustrates how Indian authorities and courts are increasingly looking beyond contractual language to assess real economic substance.
Understanding Permanent Establishment
Under India’s tax treaties, a taxable presence is broadly defined as:
A fixed place PE, where the business is carried on through a place at the disposal of the entity;
A service PE, where personnel furnish services in India beyond the prescribed threshold period; and
An agency PE, where a dependent agent in India habitually concludes or effectively finalises contracts on behalf of the foreign entity.
In applying these tests, courts look beyond labels mentioned in contracts to gauge where work is performed, by whom, for how long, and its importance to the enterprise. Presence limited to preparatory or auxiliary functions is not deemed to constitute a PE. If a PE is constituted, India may tax the profits attributable to that presence as business income taxable at ~38%.
This principle ‘substance over form’ has led authorities to examine evidence such as travel records, emails, organisation charts and digital footprints.
IMAX Theatre Services Ruling: A Closer Look
In the recent IMAX ruling (May 2026), the Delhi Tribunal examined the tax implications of maintenance and support services provided by IMAX, a Canadian tax resident, to customers in India. IMAX engaged an Australian vendor to provide such services. One employee of the Australian vendor was present in India for 67 days. However, a review of the employee's LinkedIn profile revealed that he described himself as working for IMAX on a full-time basis. Relying on this, the tax authorities alleged that he was effectively an IMAX employee, thereby constituting a PE of IMAX in India. Though the Tribunal held that a LinkedIn profile alone cannot override credible evidence, the case highlights the need for alignment between contracts, HR documentation and online presence.
In another case involving Hyatt International Southwest Asia Ltd. (July 2025), the Supreme Court held that sustained operational and strategic control exercised by Hyatt UAE over two hotels in India constituted a PE, regardless of the legal form. Although, the presence of employees in India did not exceed the 9-month threshold for a Service PE under the UAE treaty, the travel logs and the employee’s functions revealed a continuous and coordinated engagement with the hotels’ operations. The ruling reinforces that economic substance prevails over legal form in PE determinations. The extent of control and strategic influence were viewed as critical factors, rather than physical access to a dedicated place of business in India.
The Way Forward
Recent Indian jurisprudence increasingly reflects a clear preference for economic substance over contractual form in PE analysis. While taxpayers may continue to rely on carefully drafted agreements to manage PE exposure, recent rulings demonstrate that tax authorities are equally focused on the surrounding factual matrix, including employee conduct, remuneration structures, operational realities and digital footprints as well.
The broader takeaway is therefore one of alignment: multinational enterprises must ensure that contractual documentation, internal functions, HR records, and external representations consistently reflect the commercial reality of their India operations.
