Remote Access and Subcontractor Arrangements Do Not Entail a Fixed Place or Service PE incidence under the India-Canada DTAA

The Hon’ble Delhi ITAT, while adjudicating the appeal of Imax Theatre Services Ltd. [International Taxation [2026] 186 taxmann.com 526 (Delhi – Trib.)], a Canadian tax resident engaged in the business of providing maintenance services for IMAX Theatre Systems globally including India, addressed the twin issues of whether the assessee had a Fixed Place PE or a Service PE in India under Article 5 of the India-Canada DTAA. The assessee had entered into a separate agreement with an Australian vendor, M/s ESPM, for providing on-site maintenance services to its customers in India. The Assessing Officer alleged that a Fixed Place PE existed because maintenance services were being provided through remote access to the customers’ theatre systems and further alleged a Service PE under Article 5(2)(l) on the basis that one Mr. Sunil Kumar, visiting customer sites in India, was an employee or dependent agent of the assessee. Accordingly, the AO attributed profits maintenance services and sale of related goods to such alleged.

On the question of Fixed Place PE, the Tribunal examined the four well-established tests as laid down in the landmark Supreme Court decision of Formula One World Championship Ltd. v. CIT [2017] 80 taxmann.com 347 (SC), namely the place of business test, the disposal test, the permanence test, and the business activity test, and found that none of these tests were satisfied in the present case. The remote access provided to the assessee was limited to maintenance functions such as troubleshooting and bug-fixing and did not confer unfettered control or overriding access over the theatre systems owned by the Indian customers. The assessee did not have any premises at its disposal in India, nor was there any degree of permanence or continuity in its activities. Accordingly, the Tribunal concluded that no Fixed Place PE existed under Article 5(1) of the DTAA.

Regarding the allegation of a Service PE wherein the Revenue’s case rested significantly on Mr. Sunil Kumar’s LinkedIn profile, which indicated full-time employment with IMAX, the Tribunal noted that the total period of physical visits by Mr. Sunil Kumar to customer sites in India aggregated to only 67 days, falling well short of the 90-day threshold prescribed under Article 5(2)(l) of the DTAA. Further, the Tribunal held that a LinkedIn profile could not be the deciding factor in determining employment status, especially when a formal affidavit had been filed by M/s ESPM explicitly confirming that Mr. Sunil Kumar was their employee. The Tribunal further observed that the Revenue’s attempt to invoke the concept of a “Virtual Service PE” on the basis of services provided remotely from outside India was not tenable relying on the Delhi ITAT’s decision in Ernst & Young (EMEIA) Services Ltd. v. ACIT [2026] 184 taxmann.com 671 (Delhi – Trib.), which itself drew extensively from the Delhi High Court’s ruling in CIT v. Clifford Chance Pte Ltd. [2025] 181 taxmann.com 254 (Delhi). The Tribunal held that the concept of Virtual PE on the basis of remotely rendered services was not a valid construct for determining a Service PE under extant Tax treaty provisions.

Conclusion:

The ruling is a significant addition to the growing body of jurisprudence reaffirming that the constitution of a PE under tax treaties requires satisfaction of well-established physical presence thresholds and cannot be expanded through judicially constructed concepts such as Virtual PE.

The decision also underscores the importance of maintaining robust contractual and documentary evidence, including vendor agreements and affidavits, to establish the employment status of on-site personnel and the nature of remote service arrangements. For multinational enterprises rendering maintenance or support services in India through subcontractors or via remote access, this ruling provides welcome clarity that the mere provision of such services does not, by itself, create a taxable presence in India under the DTAA framework.