Limiting the liaison office's boundaries

A liaison office of a foreign company is meant to explore/analyse the business options in a country. In India, such an office should obtain prior approval from the Reserve Bank of India and it cannot undertake income generating activities. Therefore, a liaison office is not taxable in India unlike a branch office, which is treated as a permanent establishment (PE) of the foreign company.The Karnataka High Court in the case of Jebon Corporation ruled that the Indian liaison office involved in price negotiations, securing orders, and so on would result in a PE. Whereas, in the recent case of Nike Inc, the court ruled that as the liaison office was limited to acting as a communication channel, more specifically for buying in India for exports, no income accrues or arises in India.The regulations have been clearly defined to limit a liaison office’s activity within RBI guidelines, beyond which Indian tax laws would apply.

Source : The Hindu Business Line