India vs Samsung Electronics: CASE SUMMARY
Case Information
- Court: High Court of Delhi
- Case No: ITA 1029/2018 and connected matters
- Applicant: The Pr. Commissioner of Income TaxIncome Tax is a direct levy imposed by governments on the income generated by individuals, corporations, and other entities within a specific jurisdiction. It serves as a major source of revenue for governments and funds various public expenditures, such as infrastructure projects, healthcare, education, national security, and welfare programs. The tax is generally calculated as a percentage of the taxable... – International TaxationFOR MORE INSIGHT ON INTERNATIONAL TAXATION, PLEASE READ THIS ARTICLE: Introduction to International Taxation: Key Concepts & Guidelines International Taxation encompasses the framework of laws, principles, and treaties that govern the tax obligations of individuals and entities engaged in economic activities that span multiple jurisdictions. This field addresses how income, profits, and gains are taxed when operations or investments extend... – 3
- Defendant: Samsung Electronics Co. Ltd.
- Judgment Date: 15 January 2025
- Download the FULL JUDGMENT
Judgment Summary
The High Court of Delhi ruled on appeals filed by the Commissioner of Income TaxIncome Tax is a direct levy imposed by governments on the income generated by individuals, corporations, and other entities within a specific jurisdiction. It serves as a major source of revenue for governments and funds various public expenditures, such as infrastructure projects, healthcare, education, national security, and welfare programs. The tax is generally calculated as a percentage of the taxable... (International TaxationFOR MORE INSIGHT ON INTERNATIONAL TAXATION, PLEASE READ THIS ARTICLE: Introduction to International Taxation: Key Concepts & Guidelines International Taxation encompasses the framework of laws, principles, and treaties that govern the tax obligations of individuals and entities engaged in economic activities that span multiple jurisdictions. This field addresses how income, profits, and gains are taxed when operations or investments extend...) against Samsung Electronics Co. Ltd., challenging the Income TaxIncome Tax is a direct levy imposed by governments on the income generated by individuals, corporations, and other entities within a specific jurisdiction. It serves as a major source of revenue for governments and funds various public expenditures, such as infrastructure projects, healthcare, education, national security, and welfare programs. The tax is generally calculated as a percentage of the taxable... Appellate Tribunal’s (ITAT) earlier decisions. The core dispute revolved around whether Samsung’s Indian subsidiary, Samsung India Electronics Pvt. Ltd. (SIEL), constituted a Permanent Establishment (PE) of Samsung Korea under Article 5 of the India-Korea Double Tax AvoidanceTax avoidance refers to the practice of legally structuring financial activities to minimise tax liability, reducing the amount of tax owed without violating laws. Unlike tax evasion, which is illegal and involves concealing income or misreporting, tax avoidance operates within the framework of the law. Multinational enterprises (MNEs) and individuals often engage in tax planning strategies that reduce tax liabilities... Agreement (DTAA).
The Income TaxIncome Tax is a direct levy imposed by governments on the income generated by individuals, corporations, and other entities within a specific jurisdiction. It serves as a major source of revenue for governments and funds various public expenditures, such as infrastructure projects, healthcare, education, national security, and welfare programs. The tax is generally calculated as a percentage of the taxable... Department argued that the activities conducted by expatriates seconded to SIEL exceeded preparatory or auxiliary functions, creating a Fixed Place PE or Service PE. It cited close interactions between expatriates and Samsung Korea as evidence of operational control. Conversely, Samsung contended that SIEL operated as a separate legal entity, with expatriates employed locally under tripartite agreements. Their roles, the company argued, were confined to supporting SIEL’s Indian business.
The Dispute Resolution Panel (DRP) and ITAT had ruled in Samsung Korea’s favour, asserting that the expatriates’ functions aligned with SIEL’s business and did not establish a PE. The Delhi High Court upheld these decisions, emphasising that there was insufficient evidence to prove that Samsung Korea conducted its business in India through SIEL. The expatriates’ activities were deemed to benefit SIEL alone, with no direct control exerted by Samsung Korea.
The Court highlighted that Article 5 of the DTAA requires concrete evidence of business management or operational control by the foreign entity to establish a PE. It found no such evidence in the present case. Further, remuneration arrangements complied with transfer pricingTransfer pricing is a fundamental concept in international taxation that defines the pricing methods and rules applied to transactions between related entities within a multinational enterprise (MNE). In the context of tax regulations, it governs how prices for goods, services, or intangibles (such as intellectual property) are set when these items are exchanged between different branches, subsidiaries, or affiliates of... regulations and did not indicate disguised control. The Court reiterated that the mere subsidiary-parent relationship does not automatically constitute a PE.
This judgment underscores the importance of differentiating between local subsidiary activities and parent company operations under international tax treaties. For multinationals, it reaffirms the need for robust governance structures and compliance with transfer pricingTransfer pricing is a fundamental concept in international taxation that defines the pricing methods and rules applied to transactions between related entities within a multinational enterprise (MNE). In the context of tax regulations, it governs how prices for goods, services, or intangibles (such as intellectual property) are set when these items are exchanged between different branches, subsidiaries, or affiliates of... standards to avoid disputes. The ruling also serves as a reminder to tax authorities to base their assessments on substantive evidence rather than assumptions.
