The Authority for Advance Rulings (AAR), in IKEA Trading (Hong Kong) v DIT, on 19 December addressed the issue of whether a liaison office of a foreign entity which facilitates the purchase of goods in India is tax-liable.
Ikea Trading (Hong Kong) established a liaison office in New Delhi, exclusively for the purpose of organizing the purchase of goods in India. The purchase and export of the goods is contracted to and handled by a separate entity, Ikea India. Ikea India sells and exports the goods to Ikea Trading, which then sells them on to Ikea distribution outlets around the world.
However, in order to save on freight costs, the goods are delivered directly from India to their final destinations at the Ikea distribution outlets, rather than being sent to Ikea Trading’s premises. In other words, at the time of export the goods are owned by Ikea Trading, although they are sent to the premises of Ikea Trading’s customers. Further, Ikea Handles of Switzerland (Ikea Handles) carries out the function of a central treasury.
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The legislative and regulatory update is compiled by Nishith Desai Associates, a Mumbai-based law firm that provides legal and tax counselling. The authors can be contacted at nishith@nishithdesai.com. Readers should not act on the basis of this information without seeking professional legal advice.
