Skip to content
Got a notice? Emergency response

Business, Compliance

Your Indian subsidiary bills its parent cost-plus. Does that expose the parent itself to Indian tax?

Form 3CEB asks whether the price you charge your overseas parent is fair. A separate, bigger question sits behind it: does the arrangement itself give the tax department a claim on the parent company's own profits?

Your Indian subsidiary does back-office, development, or support work for its overseas parent and bills it on a cost-plus basis, costs plus an agreed markup. You've likely already dealt with the transfer-pricing side of that, Form 3CEB, proving the markup is fair. A separate, more consequential question rarely gets asked at all: does the Indian subsidiary's day-to-day work itself create a taxable presence, a Permanent Establishment, for the FOREIGN parent, exposing the parent's own global profits to Indian tax, not just the subsidiary's cost-plus fee?
Request a free CA call
Last reviewed: 6 September 20265 min readReviewed by Preetesh Maloo, CA

The short answer

A Delhi Income Tax Appellate Tribunal ruling from 30 September 2025, in the case of a US company's Indian subsidiary providing back-office services on a cost-plus basis (a 14% markup), held that this did NOT create a Permanent Establishment for the foreign parent, rejecting all three ways the tax department argued it: a fixed-place PE, a service PE, and a dependent-agent PE. The tribunal applied a 2017 Supreme Court precedent on the same question. This is genuinely good news for a structure most of this site's readers already run, but it's one tribunal ruling on one set of facts, not a permanent guarantee. The actual determination is fact-intensive: what the Indian subsidiary's staff actually do, whether the parent's own people direct that work from abroad or sit in India directing it, and whether anyone in India has authority to sign contracts on the parent's behalf.

Is this your situation? Get a senior CA on it.

Free 15-minute call. We list the filings and their cost, then you decide. No India trip.

Senior CA who specialises in NRI-owned Indian companies · we handle the regulator, you stay abroad

Chat with a CA on WhatsApp

Related situations

Three separate PE arguments, all rejected on these facts

The tax department tried three different routes to find a PE, and the tribunal rejected each. A fixed-place PE failed because the Indian subsidiary's own premises weren't "at the parent's disposal" for the parent's main business, the subsidiary was doing its own support work, not hosting the parent's revenue-earning activity. A service PE failed because the subsidiary's services went to the parent's foreign customers, not to anyone in India, and the parent's own staff visits to India were oversight, not service delivery. A dependent-agent PE failed because the relationship was principal-to-principal, an arm's length service arrangement, and the Indian subsidiary had no authority to sign contracts for the parent. Saving the parent money through the arrangement, on its own, doesn't create a fixed place of business either.

This is precedent to lean on, not a rule to assume

A tribunal ruling on one company's specific facts is real, useful, and currently favourable, but it isn't the same as a settled rule that applies automatically to every cost-plus subsidiary. PE determinations turn on your actual facts: what your Indian team really does day to day, whether your parent's own staff are the ones directing that work (versus your Indian team managing itself), whether anyone in India signs contracts or negotiates terms with your parent's customers, and whether the arrangement has genuinely been priced and documented as an independent service, the same discipline your Form 3CEB filing already requires. As of this page's last review, no High Court appeal of this ruling has surfaced, but tax department appeals can take time to become public, and this is exactly the kind of favourable-but-appealable position worth re-checking before leaning on it for a major decision.

What goes wrong without a CA

The common mistake isn't ignoring this question, it's never asking it at all. A subsidiary that has diligently filed Form 3CEB every year can still be structured in a way that drifts toward PE exposure over time: a parent's employee who starts spending real time in India directing the subsidiary's work, a subsidiary that starts fielding calls from the parent's own customers, or a parent representative who ends up signing something with an Indian counterparty. None of that shows up on a transfer-pricing filing. It shows up years later, in an assessment that reaches past the subsidiary's own cost-plus fee and asks for tax on the PARENT's profits attributable to India, a far larger number than anything the subsidiary itself ever declared.

What's involved

What the CA actually does

  1. 1

    We assess your actual fact pattern against the PE tests

    We look at what your Indian team genuinely does, who directs it, whether anyone in India has any role in concluding contracts with your parent's customers, and hold that against the fixed-place, service, and dependent-agent PE tests, not just against this one favourable ruling.

  2. 2

    We keep the arrangement documented as genuinely independent

    Alongside your Form 3CEB pricing work, we make sure the underlying agreement, invoicing, and operational reality all support an arm's length, principal-to-principal relationship, the same features the Concentrix CVG ruling relied on.

  3. 3

    We flag drift before it becomes exposure

    If your parent's role in directing India-side work, or anyone's role in India in dealing with your parent's customers, is starting to look different from how the structure began, we flag it early, while it's a documentation fix rather than an assessment.

What to have ready

Documents you'll typically need

  • The service or cost-sharing agreement between your Indian subsidiary and its overseas parent
  • A description of what your Indian team actually does day to day, and who directs that work
  • Any record of your parent's staff visiting or working from India, and what they did while there
  • Your existing Form 3CEB filings and transfer-pricing documentation, if any

References on this page

  • Concentrix CVG Customer Management Group, Inc. v. DCIT, ITA No. 7727/Del/2017 & Ors., Delhi ITAT, order dated 30 September 2025: no fixed-place, service, or dependent-agent PE arose from an Indian subsidiary's cost-plus (14% markup) back-office services to its US parent
  • E-Funds IT Solution Inc. v. CIT, (2017) 399 ITR 34 (SC): the Supreme Court precedent the Delhi ITAT applied, that a captive Indian subsidiary rendering support services to its foreign parent does not, without more, create a fixed-place or dependent-agent PE for that parent
  • Article 5, India-US DTAA (the applicable treaty article in the Concentrix CVG case; the exact article number and text will differ by your parent company's home country treaty, though the underlying PE tests are broadly similar across India's treaties)
  • Section 9(1)(i), Income-tax Act 1961: income accruing through a business connection in India, the domestic-law hook a PE finding would attach to

Frequently asked questions

Common questions

No. It means one tribunal, on one specific fact pattern, a US company's Indian subsidiary doing cost-plus back-office work with no India-side contract authority, found no PE. Your own facts, especially who directs the work and whether anyone in India deals with your customers, still need checking against the same tests.

Form 3CEB asks whether the price your subsidiary charges its parent is fair. This question asks something bigger, whether the arrangement itself gives India a tax claim on the PARENT's own profits, not just the subsidiary's cost-plus fee. You can be fully compliant on 3CEB and still carry PE exposure if the underlying facts drift.

The tribunal's reasoning turned on three things going the right way: the subsidiary's premises weren't at the parent's disposal, the subsidiary served the parent's foreign customers rather than anyone in India, and nobody in India had authority to sign contracts for the parent. If any of those shifts, for example a parent employee based in India starts directing the work, or someone in India starts closing deals with the parent's customers, the analysis can shift too.

The reasoning is persuasive and follows a 2017 Supreme Court precedent that isn't US-specific, but the exact treaty article defining PE differs by your parent's home country. The underlying tests, fixed place, service PE, dependent-agent PE, are broadly similar across India's treaties, but confirm the specific article for your corridor before relying on this.

Related

If this matched your situation, these go further

You pay your own overseas company a fee. That's a transfer-pricing filingYou got a transfer-pricing adjustment order. Does the tax bill keep growing?You wired your company money and called it a director loan. FEMA disagreesYou let your Indian company use your IP for free. GST doesn't see it as free

Not sure if your cost-plus subsidiary carries PE risk for your parent company?

Tell us what your Indian team does and who directs it. A practising CA will check your structure against the current PE tests, on a free call, no obligation.

Request a free CA call

No card, no obligation. All certification and filing work is handled by ICAI-registered practising Chartered Accountants.