Latest news with #Hyatt
Wall Street Journal
2 days ago
- Business
- Wall Street Journal
Why the Billionaire Pritzkers Got Obsessed With Quantum
How did two of the billionaire heirs to the Hyatt hotel fortune turned politicians get obsessed with a technology so complex that even the tech-savviest struggle to comprehend it? A little bit of hometown pride and a lot of optimism. Illinois Gov. JB Pritzker and former U.S. Secretary of Commerce Penny Pritzker are behind a statewide quantum computing push that's beginning to take shape on Chicago's south side.
Time of India
3 days ago
- Business
- Time of India
Substance vs form: All eyes now on Tiger Global case after SC's verdict on global hospitality leader Hyatt International
Mumbai: After the Supreme Court verdict last week on the global hospitality leader Hyatt International, all eyes are on the high-stake Tiger Global case , whose outcome, expected in August, could sway the fortunes of many foreign investors and force them to change the way they run their shops to bet on India. But, can the Hyatt ruling have a rub-off on the verdict on Tiger? With the same bench of judges that ruled on Hyatt to decide on Tiger-the question has cropped up among legal eagles, tax experts, and MNCs as the battle between Tiger, an offshore investor, and India's tax office nears a closure. by Taboola by Taboola Sponsored Links Sponsored Links Promoted Links Promoted Links You May Like Villas For Sale in Dubai Might Surprise You Dubai villas | search ads Get Deals Undo The question stems from the court's observation that "legal form does not override economic substance". This single observation, according to several practitioners, may link the two cases, even though they pertain to different issues. THE COMMON LINK Live Events The Hyatt feud was over whether the foreign firm, acting as a consultant to an Indian hotel group, had a ' permanent establishment ' (PE) in India. The court-while observing that "legal form does not override economic substance" -said it did as Hyatt was not a typical consultant but was deeply involved in running the hotel in India, thanks to the terms of the deal. A 'PE' status means the foreign party would pay tax here on the portion of its global earnings attributable to India - and not just the tax deducted from its fees. The Tiger case, on the other hand, relates to 'capital gains' on sale of stocks - whether a Mauritius entity could escape tax in India merely on the back of the ' tax residency certificate ' (TRC) it obtained from the Mauritian authorities under the treaty the country has with India. Here is how the 'substance versus form' argument comes up: is TRC, a piece of paper, good enough to avoid tax by a shell entity which has no office, hires few or no employees, and has no power to make decisions? While the TRC gives it 'legal form', in reality, it may just be a paper outfit lacking 'substance'. "The Hon'ble SC regarded utmost importance to 'substance over form principle' and in doing so did a deep dive into the documents to ascertain 'control of operations', actual activities of employees and commercial agreements (like revenue linked service fees) in the Hyatt International matter. Substance over form , control and management and commercial substance are important factors that take centre stage even in treaty eligibility cases and a ruling in the case of Tiger Global is expected soon," said Ashish Mehta, partner at the law firm Khaitan & Co. A COURT REMINDS It's widely believed that armed with TRCs, many overseas private equity houses save tax on sale of shares (acquired before 2017) while foreign portfolio investors avoid tax on profits from equity derivatives as their investing arms are incorporated in treaty jurisdictions like Mauritius and Singapore. Many such arrangements would come unstuck, if the SC points at inadequate substance to rule against Tiger. "Recent rulings, from Formula One to Nestle SA to Hyatt International, demonstrate a consistent judicial approach: for any tax structure, the legal framework must align with the actual, factual substance of the arrangement. If not, the court may not grant tax relief in such cases," said Ashish Karundia, founder of the CA firm Ashish Karundia & Co. He feels that post Hyatt, chances are that non-residents may also be required to satisfy a 'substance' test in addition to holding a TRC when seeking treaty benefits. "Considering the greater scrutiny faced nowadays, it is essential to understand that the degree of reliability assigned to TRC is that of sufficient evidence rather than an irrebuttable evidence. It is sufficient, to begin with, but neither sacrosanct nor infallible!," said Karundia. The tax office had questioned Tiger Global's stand of not paying tax when it sold shares of Flipkart Singapore (holding shares of an Indian company) to another foreign investor (linked to Walmart) on the grounds that Tiger's Mauritius arm (the actual seller owning the Singapore entity) was only a vehicle used to avoid tax. Agreeing on the possibility of the court putting matters under the 'substance' lens, Rahul Garg, managing partner of Asire Consulting, which advises MNCs on tax, finance, assurance, and regulatory matters, said, "The court examined the commercial and operational realities to evaluate the degree of control and supervision by the foreign entity. It reiterated that legal form does not override economic substance. Since it's a fundamental requirement that tax treaties need to be availed in good faith, these observations could further support the Revenue's case if it can prove that the parent was an active participant with significant control and supervision in the decision making on investments by the entity which recorded the capital gains." It isn't the first time the court held substance over form. But that it chose to give a subtle reminder in the Hyatt ruling is lending itself to interpretation.
Hindustan Times
6 days ago
- Business
- Hindustan Times
Operational control enough to tax foreign firms in India, says SC
The Supreme Court on Thursday held that a multinational company may be taxed in India so long as it exercises significant operational control over such premises, even if it has no employees staying here for a period longer than the threshold typically used to assess whether the company is a so-called Permanent Establishment. Operational control enough to tax foreign firms in India, says SC The ruling , which has significant implications for MNCs operating in India, came as a setback to Dubai-based Hyatt International Southwest Asia Ltd, which had challenged its tax liability in India for advisory and management services rendered to Hyatt hotels across the country between 2009 and 2018. A bench of justices JB Pardiwala and R Mahadevan affirmed a 2023 Delhi High Court judgment that recognised Hyatt's presence in India as a Permanent Establishment (PE) under Article 5(1) of the India-UAE Double Taxation Avoidance Agreement (DTAA). The court concluded that Hyatt's active control over the day-to-day hotel operations in India through long-standing agreements established a fixed place PE, making it liable to pay tax in India. Typically, only branch offices, factories, mines etc are considered PEs, although there is also a stipulation related to the time employees spend in India. At the centre of this case was a Services and Operating Services Agreement (SOSA) signed by Hyatt with hotel owners in India, under which the Dubai-based entity provided hotel advisory and consultancy services. Hyatt contended that it operated solely from Dubai, was not obliged to station staff in India, and only permitted occasional visits by its personnel to Indian hotels. It further argued that the SOSA contained no clause allowing it to conduct business from within the hotels, nor did it maintain any office or branch in India. But the top court rejected these submissions, holding that the 'disposal test' for identifying a PE did not require exclusive possession or formal rights over premises, but a fact-specific inquiry into the foreign enterprise's ability to conduct core business functions from the premises. 'The appellant's contention that the absence of an exclusive or designated physical space within the hotel precludes the existence of a PE, is misconceived, said the court, relying on its earlier precedent in Formula One World Championship Ltd ()2017. 'Temporary or shared use of space is sufficient, provided business is carried on through that space,' it added. In this case, the bench found that Hyatt exercised 'pervasive and enforceable control' over the hotel's strategic, operational, and financial aspects. This included the authority to appoint and supervise key personnel, implement HR and procurement policies, control pricing and branding, operate bank accounts, and assign staff to the hotel without the owner's approval. 'These rights go well beyond mere consultancy and indicate that the appellant was an active participant in the core operational activities of the hotel,' said the court, noting that Hyatt's control extended to everyday affairs and not just high-level decisions. Amit Baid, Head of Tax at BTG Advaya law firm, said that the ruling could set a precedent for PE determinations in cases involving frequent employee travel to India. 'The judgment provides a clear conceptual framework for determining PE thresholds -- frequent, regular visits by employees, rather than the duration of individual stays, is the key factor. Once continuity of business presence is established, the return or rotation of individuals becomes irrelevant; and operational control, oversight, and income linked to core functions establish a commercial nexus necessary for a PE,' Baid added. The judgment meanwhile stressed that the 20-year duration of the agreements, combined with continuous and structured involvement of Hyatt's executives in India, satisfied the three-pronged test of stability, productivity, and dependence that governs the recognition of a PE. Further, the court ruled that even though no single Hyatt employee exceeded the 9-month threshold under Article 5(2)(i) of the DTAA, the aggregate and continuous presence of various employees, verified through travel logs and operational duties, fulfilled the requirement of a PE. The court clarified that the legal form of presence is secondary to the economic substance of business functions being carried out in India. 'The appellant's ability to enforce compliance, oversee operations, and derive profit-linked fees from the hotel's earnings demonstrates a clear and continuous commercial nexus and control with the hotel's core functions,' the bench said, calling the hotel premises the 'situs of the appellant's primary business operations.' Importantly, the Supreme Court clarified that under the India–UAE Direct Taxation Avoidance Agreement, the lack of a specific article allowing taxation of Fees for Technical Services (FTS) would not override the existence of a PE under Article 5(1), particularly where core business functions are carried out through a fixed place.
Deccan Herald
6 days ago
- Business
- Deccan Herald
Foreign companies with permanent establishment taxable in India: Supreme Court
A bench of Justices J B Pardiwala and R Mahadevan dismissed the appeals by Hyatt International Southwest Asia Ltd, while affirming the findings of the Delhi HC that Hyatt had a fixed place PE in India within the meaning of Article 5(1) of the DTAA (Double Tax Avoidance Agreement).
Time of India
7 days ago
- Business
- Time of India
SC says Hyatt's India operations are taxable under PE norms
In a ruling that has significant implications for multinational companies operating in India, the Supreme Court Thursday held that UAE-headquartered Hyatt International Southwest Asia , which provides hotel consultancy and advisory services in India as part of its business operations, has a fixed place Permanent Establishment (PE) in India for tax purposes. Upholding a Delhi High Court order that ruled against the hotel company, a bench comprising Justices J.B. Pardiwala and R. Mahadevan dismissed various the appeals by Hyatt International Southwest Asia Ltd, while affirming the findings of the HC that Hyatt had a fixed place PE in India within the meaning of Article 5(1) of the DTAA, and that, the income received under the strategic oversight services agreements (SOSA) is attributable to such PE and is, therefore, taxable in India. Explore courses from Top Institutes in Please select course: Select a Course Category Public Policy Leadership PGDM Finance Design Thinking Cybersecurity CXO Technology Digital Marketing Data Science Artificial Intelligence Healthcare MBA Project Management Operations Management Data Science Degree Management Others others healthcare Product Management MCA Skills you'll gain: Duration: 12 Months IIM Calcutta Executive Programme in Public Policy and Management Starts on undefined Get Details Skills you'll gain: Economics for Public Policy Making Quantitative Techniques Public & Project Finance Law, Health & Urban Development Policy Duration: 12 Months IIM Kozhikode Professional Certificate Programme in Public Policy Management Starts on Mar 3, 2024 Get Details The top court said that was undisputed that Hyatt's executives and employees paid frequent and regular visits to India to oversee operations and implement SOSA. 'The finding of the assessing officer, based on travel logs and job functions, establish continuous and coordinated engagement, even though no single individual exceeded the 9-month stay threshold,' according to SC Under Article 5(2)(i) of the agreement between the government of India and the United Arab Emirates for avoidance of double taxation (DTAA) Under Article 5(2)(i) of the DTAA, the relevant consideration is the continuity of business presence in aggregate – not the length of stay of each individual employee. Once it is found that there is continuity in the business operations, the intermittent presence or return of a particular employee becomes immaterial and insignificant in determining the existence of a PE, Justice Mahadevan, writing for the bench stated, adding the HC was correct in concluding that Hyatt's role was not confined to high-level decision making, but extended to substantial operational control and implementation. The Dubai-based company's ability to enforce compliance, oversee operations, and derive profit-linked fee from the hotel's earnings, demonstrate a clear and continuous commercial nexus, and control with the hotel's core functions, the judgment said, adding that this nexus satisfied the condition necessary for the constitution of a fixed place of PE under Article 5(1) of the India – UAE DTAA. The top court further said that 'the extent of control, strategic decision-making, and influence exercised by the appellant clearly establish that business was carried on through the hotel premises, satisfying the conditions under Article 5(1)…the hotel itself was the situs of the appellant's primary business operations, carried out under its direct supervision and aligned with its commercial interests.' Welcoming the ruling, Amit Baid of BTG Advaya said that "the judgment provides a clear conceptual framework for determining PE thresholds—frequent, regular visits by employees, rather than the duration of individual stays, is the key factor; once continuity of business presence is established, the return or rotation of individuals becomes irrelevant; and operational control, oversight, and income linked to core functions establish a commercial nexus necessary for a PE. The ruling could set a precedent for PE determinations in cases involving frequent employee travel to India." The judgement establishes that substantive operational involvement, such as orchestrating policies, directly overseeing operations, and controlling implementation, will be closely scrutinised when determining the existence of a fixed place PE in India, said Varun Gakhar, Research Associate at Janssen-Sanghavi & Associates. 'In essence, oversight that crosses into operational control may trigger domestic tax exposure under Indian tax treaties. This judgement will have to be analysed closely by multinationals, as determining whether a PE exists is a very fact- and circumstance-specific question,' he added. In 2008, Hyatt had entered into two strategic oversight services agreements with Asian Hotels Ltd. One was in respect of hotel Hyatt Regency, Delhi owned by Asian Hotels, and the other pertained to a hotel in Mumbai. Under the terms of the agreement, Hyatt agreed to provide strategic planning services and "know-how" to ensure that Hyatt Regency was developed and operated as an efficient and a high quality international full-service hotel. Asian Hotels was thereafter reorganised and its name was subsequently changed to Asian Hotels (North) Ltd., which continued to own Hyatt Regency. For the Assessment Year 2009-10, Hyatt filed its return of income declaring 'Nil' income and claiming a refund of around Rs 88 lakh. The Assessing Officer had passed assessment orders for 2009-18, holding that Hyatt's activities constituted a business connection under Section 9(1)(i) of the Income Tax Act; a PE under Article 5 of the DTAA; royalties and fees for technical services under both the Income Tax Act and DTAA. However, Hyatt asserted that its income was not taxable under the Act as there was no specific Article under the DTAA for taxing Fees for Technical Services. It further stated that it did not have any fixed place of business, office, or branch in India, and that the presence of its employees in India during the relevant previous year did not exceed the nine-month threshold under Article 5(2) of the DTAA. Therefore, the appellant claimed that it did not have a PE in India and that its business income was not taxable under Article 7 of the DTAA. The Income Tax Appellate Tribunal (ITAT) in December 2019 and then the HC rejected Hyatt's contention that it did not have a PE in India.
