Cross-border consulting arrangements create permanent establishment risk more often than any other structure I work with, and almost always by accident. The fee itself is rarely the problem. How the arrangement is described, and how the people involved actually behave, is where the exposure lives.

What creates the exposure

A foreign company can become taxable in India without incorporating anything, if it has a fixed place of business here through which it operates, or if someone in India habitually concludes contracts on its behalf or plays the principal role leading to their conclusion.

Consulting arrangements walk into both. A consultant working from an office the foreign company effectively controls looks like a fixed place. A consultant who negotiates commercial terms with Indian customers looks like a dependent agent. Neither requires anyone to have intended it.

There is also a services limb in several treaties, under which furnishing services in India through personnel for more than a specified period in a twelve-month window creates a taxable presence on its own. This is the one that catches project-based work where nobody was counting days.

How I structure to reduce the risk

Be clear about who the consultant’s customer is. If the Indian consultant is providing services to the foreign company, the foreign company is the customer and the consultant is an independent contractor with their own business. If the consultant is really providing services to the foreign company’s Indian customers, the substance is different and the documents should say so, because the tax outcome will follow the substance either way.

Keep contracting authority out of India. The consultant can present, support, gather requirements and advise. Commercial terms are agreed and contracts are concluded by the foreign entity. This has to be true operationally, not only in the agreement — email trails showing an India-based person agreeing price and scope will outweigh a clause saying they cannot.

Watch the independence of the contractor. An “independent consultant” with one client, working the client’s hours, using the client’s systems, reporting into the client’s management line and holding a title on the client’s org chart is not independent in substance. If that is the reality, a proper employment or subsidiary arrangement is usually the cheaper answer than defending the characterisation later.

Count the days. Where a treaty has a services threshold, someone must be tracking presence in India across the relevant window, including short visits by the foreign company’s own staff. Nobody does this unless it is assigned to a person.

Do not create a fixed place. A dedicated desk, an office in the foreign company’s name, storage of its equipment, its signage — these build the fixed-place argument. Consultants working from their own premises, with their own equipment, do not.

Getting the fee right, and characterised right

The fee matters in two ways. First, characterisation: is the payment a fee for technical services, a royalty, or business profits? Each sits under a different treaty article, attracts a different withholding treatment, and turns on what is actually delivered rather than the invoice wording. Arrangements that bundle advice, software access and data in one fee are frequently mischaracterised for years.

Second, arm’s length. Where the consultant is related to the foreign company, the fee has to stand up as a market price with documentation behind it. Cost-plus with a margin chosen by feel is the most common position I have to rebuild.

The practical points that make the file defensible:

  • A scope of work specific enough that an outsider can see what was delivered
  • Evidence of delivery — reports, deliverables, time records — not just invoices
  • Withholding applied correctly, with the treaty documentation in place before payment
  • Form 15CA and 15CB obtained where the remittance requires them
  • Consistency between the contract, the invoices, the transfer pricing file and how people describe their own jobs publicly

That last point is the one I spend most time on. A LinkedIn profile describing someone as “India Country Head” for a foreign company that claims no presence in India is, in evidentiary terms, a problem.

When the honest answer is a subsidiary

Sometimes the right advice is to stop optimising the consulting arrangement and incorporate. If the India activity is really sales, really customer-facing, and really directed from here, a subsidiary with a properly benchmarked service fee gives you a defensible position and a predictable cost.

A consulting arrangement that has quietly grown into an India operation is the most expensive of all the options, because it carries the cost of a presence without any of the certainty.

If you have consultants or contractors operating in India for a foreign entity and the arrangement has evolved since it was written, AeTx reviews permanent establishment exposure, characterisation and the withholding position together, before it becomes an assessment.