Foreign direct investment remains one of the most significant stimuli of foreign currency earning potential for T&T. Foreign investment injects foreign capital directly, funding projects and revenue streams which generate export revenue without the need for immediate outflow obligations.
Within the Caribbean and even globally, T&T remains an attractive destination for foreign direct investment due to its stable civil and political climate, sustainable and world-class energy resources and affordability, highly skilled workforce, respect for the rule of law and geographic location. Additionally, it offers a stable business environment supported by numerous preferential trade agreements and bilateral treaties, together with numerous double taxation treaties.
Foreign investors, however, should be cognisant of permanent establishment risks which pose the potential to increase the tax burden, reduce capital flows and make cross-border transactions less attractive. In this article, we will explore permanent establishments and double taxation, relief, and briefly discuss two decisions relating to permanent establishments, namely Formula One World Championship Ltd v Commissioner of Income Tax< an April 2017 judgment, and Hyatt International Southwest Asia Ltd v Additional Director of Income Tax, an July 2025 judgment.
The laws of T&T provide for a number of corporate structures that a foreign investor may utilise to carry on business in T&T. However, for many projects, a significant amount of preparatory and auxiliary work may be required to be undertaken before a formal corporate structure is established in T&T.
The preparatory and auxiliary work may be guided by the nature of the principal service to be performed in T&T, the stage that the particular project has reached or a number of other commercial considerations. There may even be projects that are ultimately abandoned, or the nature of the service may not warrant the establishment of a business in T&T. For example, a foreign company may be required to conduct feasibility studies and environment impact assessments for a proposed pipeline expansion. This can involve individuals visiting the relevant sites, but never occupying a defined physical location within T&T. In another instance, the foreign company may be contracted to perform work for a one-off project such as installation of pipelines or construction of a rig, in circumstances where the project is unlikely to extend for more than a few months.
In any of these cases, whether for the preparatory and auxiliary work, or the work not requiring the establishment of a business, the foreign company is likely to be taxed on the income it earns from these projects in its home jurisdiction, and ordinarily, in T&T as well. Such a juridical double taxation would increase the taxes that are likely to be paid on the same income, thus further reducing profitability for the project.
Through the double taxation treaties that T&T has entered into, foreign investors may be afforded relief from the juridical double taxation that arises, thereby preserving the project’s economic viability. There are currently 15 double taxation treaty entered into between T&T and countries such as Canada, China, India, Italy, Switzerland, the United Kingdom, and the United States of America (in addition to the regional Caricom double taxation treaty).
Under the bilateral double taxation treaties, the business profits of a foreign investor of the foreign jurisdiction, is taxable only in that foreign jurisdiction (ie, not T&T), unless the foreign investor carries on business in T&T through a “permanent establishment situated” in T&T. The double taxation treaty in issue will define what is meant by the term “permanent establishment.”
If the nature of the foreign investor’s services performed in T&T, or the structure of the business in T&T, is such that it falls within the scope of a permanent establishment, then the business profits of the foreign investor will also be taxed in T&T. A permanent establishment is considered to exist in a number of different scenarios but at minimum, it is a fixed place of business through which the business of the foreign investor is carried on.
A foreign investor may be treated as having created a permanent establishment where it has a place of management, branch, office, factory, workshop, mine, an oil and gas well, quarry, or any other place of extraction of natural resources. Conversely, a permanent establishment may not be considered to have been created where, for example, there is an assembly project that does not last for more than three months, according to the provisions of the United Kingdom-T&T double taxation treaty.
Double taxation treaties provide for further circumstances which, if they exist, may deem a permanent establishment as having been created.
For example, the double taxation treaty may state that a permanent establishment is created if a person who is not an agent, both has and habitually exercises, an authority to conclude contracts in T&T in the name of the foreign investor.
On the other hand, a permanent establishment may be deemed to not exist if the fixed place of business in T&T is simply for the purpose of storing, displaying or delivering goods belonging to the foreign investor.
The concept of a permanent establishment is therefore a critical consideration when the foreign investor performs any functions or provides any services within T&T, particularly in the nature of preparatory and auxiliary work, in anticipation of a larger project. Additionally, even where the duration of the project is short in nature, lasting only for a few days, there remains the risk that a permanent establishment has been created. That would expose the foreign investor to account for taxes, notwithstanding the potential for relief under a double taxation treaty. This latter risk was aptly illustrated in the Formula One World Championship Ltd v Commissioner of Income Tax case.
In this case, Formula One World Championship Ltd (‘F-1’) entered into an agreement to operate Grand Prix races annually in India, for five years. Each annual Grand Prix race was intended to last for 3 days, while F-1 was allowed access to the contracted racing circuit for 14 days before the event, and 7 days after.
Over a five-year period, F-1 held only three Grand Prix races, with a cumulative presence in India of approximately 65 days. Notwithstanding, F-1 was assessed to tax on the basis that was determined to have a permanent establishment in India.
The Supreme Court of India held that F-1 had a fixed-place permanent establishment in India under the India-UK double taxation treaty, as it had effective control that it exercised on the racing circuit in India. The effective control of the racing circuit meant that there was a distinct geographical location that was “at the disposal of” F-1, which exercised a considerable extent of control.
Additionally, the Court held that F-1’s business in India was the commercial exploitation of the rights in the F-1 Championship, which satisfied the requirement that business was carried on at the fixed place. The short duration of the event made no difference to the finding of a permanent establishment.
A similar ruling followed in the Hyatt International Southwest Asia Ltd (‘HISA’) decision. HISA was a company tax resident in the United Arab Emirates, and was in the business of consultancy services in the hotel sector, possessing a high level of industry know-how.
HISA entered into a service agreement with a hotel in India to provide strategic planning services and to ensure that the hotel operated at a high-quality by the standard of HISA. HISA asserted that it did not have a place of business in India, while its employees’ presence in India did not exceed any time-period stipulated in the UAE-India double taxation treaty. Nonetheless, HISA was assessed to tax on the basis that, although a UAE tax resident, it was engaged in business in India through a permanent establishment.
The Court held that HISA had a fixed-place permanent establishment in India, and as such was subject to tax on the profits earned in India.
In the Court’s view, HISA exercised pervasive and enforcement control over the Indian hotel’s strategic, operational and financial decisions, with powers to appoint and supervise the general manager and other key personnel, implement human resource and procurement policies, control pricing, branding and marketing strategies, manage operational bank accounts, and assign personnel to the hotel. These, the Court considered, went beyond mere consultancy and illustrated that HISA was an active participant in the core operational activities of the Indian hotel.
Notwithstanding the similar rulings in F-1 and HISA, there remains some controversy in the HISA decision. More particularly, there are questions regarding whether there was truly a designated physical space within which HISA carried on its business, the focus being on HISA’s business, for the purposes of the permanent establishment test.
Further, the Court applied an “economic substance test” in determining permanent establishment status, disregarding the service agreement. While the notion of an economic substance test is not novel to international tax law, it is a concept that operates within specific confines, as it purports to set aside the existence of a validly existing contract. It is therefore not a power to serve as a “mop-up” provision, so as to impute a state of affairs, but should be wielded with a level of intention and caution.
In the context of T&T, the creation of a permanent establishment, or in any event the incidence of corporation tax, creates practical issues including the need to either register or incorporate an entity in T&T, in order to report and pay the T&T taxes.
Registration and incorporation will then create additional regulatory requirements including filing returns and declarations not just from a tax perspective, but for companies law compliance.
The decisions in F-1 and HISA illustrate that where foreign investors and companies engage in business in a cross-border scenario, a significant level of consideration should be placed on the nature of the service being performed, the manner in which the service is performed and heightened scrutiny placed into whether a permanent establishment has been established.
