The Indian Supreme Court has upheld an earlier High Court decision that the Formula One World Championship (F1) has a Permanent Establishment (PE) in India and so is liable to be taxed there for the Indian F1 race.
The High Court had previously held that provided the presence of a taxpayer was in a physically defined area, permanence in such a place could be relative to the context of the business. “The taxpayer carried on business in India for the duration of the race, two weeks before it and a week after the race. Consequently, the F1 circuit constitutes a fixed place of business under Article 5(1) of the India-UK tax treaty.”
Also it was held that payments made to F1 were business income and not royalty, as the logos used during the championship were not for intellectual property purposes but for hosting the event.
The Supreme Court ruling “has dealt with the most litigated subject of tax, PE, which has evolved over time to be much more than the fixed structure of brick and mortar from where the business of the assessee is conducted. In this case, for the first time in the history of tax litigation, a car race circuit has been held to be the fixed place PE of the assessee,” said Rakesh Nangia, managing partner, Nangia and Co.
Details of the ruling are yet to be made public.