Direct Tax Amicus, September 2026

Click the 'View PDF' option above to read the full Amicus.

From Linklaters to Paul Wurth: The changing contours of the force of attraction rule in tax treaties

By Giridhar Vasudevan, Rishabh Bhatia and Khushi Manchanda

The article in this issue of Direct Tax Amicus analyses the force of attraction rule under tax treaties, particularly after the ITAT New Delhi decision in Paul Wurth Italia. The Tribunal has declined to attribute offshore supply profits to India despite the existence of an admitted supervisory PE, while emphasizing that the application of force of attraction rule cannot be divorced from the factual role played by the PE itself. This article examines the conceptual foundations of the force of attraction rule, traces its judicial evolution in India, and evaluates the relevance of the doctrine in an era increasingly shaped by source-based taxation and digital nexus rules.

Notifications and Circulars

·         Foreign Assets of Small Taxpayers Disclosure Scheme Rules, 2026 notified

o   Fair market value of assets prescribed

o   Amount payable under the Scheme prescribed

o   Manner of making declaration prescribed

o   Procedure for payment and certification prescribed

o   Compliance framework prescribed

Ratio Decidendi

·         Transfer of an undertaking prior to commencement of production does not amount to reconstruction of existing business for purposes of Section 80IE deduction – Gujarat High Court

·         Staffing company eligible for deduction under Section 80JJAA – Reimbursement by clients does not negate incurrence of employee cost – ITAT Mumbai

·         Convenience fee retained by ticket booking platform is not ‘commission’; Section 194H not applicable – ITAT Mumbai

·         Foreign limited partnership may qualify as a ‘company’ under India-USA DTAA – Status cannot be determined merely on PAN classification – ITAT Mumbai

·         Offshore supply of equipment and designs not taxable in India where title passes outside India and supervisory PE has no role in such supplies – ITAT New Delhi

·         Consideration for repurchase of unexercised vested stock options taxable as capital gains, not as salary perquisite under Section 17(2) – ITAT Bengaluru

·         Mere leasing of property to another entity for running educational institutions does not constitute charitable activity – Section 12A registration rightly denied – ITAT New Delhi