the overall operations of MSAS. In order to ensure that
no material exposure arose from the investors’ perspective, MSCo’s personnel travelled to India for a “very short
term”. In addition, MSCo’s staff was hired out to MSAS
for periods ranging from several months to a few years
to work under MSAS’s supervision (“secondment activities”). The staff would continue to be legally employed
by MSCo, the salaries would continue to be paid by
MSCo, and MSAS would reimburse the salaries without
a mark-up.
The consideration paid by MSCo was the cost, plus a
mark-up of 29%. The mark-up was based on a transfer
pricing study; the arm’s length character of the remuneration was not under discussion.
The issues were whether the various activities of MSAS
and MSCo triggered a PE and whether the 29% payment
extinguished MSCo’s tax liability in India. In other
words, if a PE was triggered, did the PE have additional
profits which could be taxed, where MSAS was already
taxed on an arm’s length remuneration?