Reinsurance premium received by Irish insurer from Indian insurers not taxable in India in absence of its PE

The Mumbai ITAT recently held that the reinsurance premium received by Irish insurer (Assessee) from Indian insurers as not taxable in India due to non-existence of Assessee’s Permanent Establishment (PE) in India.

While dismissing the Department’s opinion of holding the Indian AE (RGA India) engaged in providing support services as Dependent Agent PE, the Division Bench comprising of Shri S. Rifaur Rahman, Accountant Member and Shri Rahul Chaudhary, Judicial Member observed that “Merely because its whole functions depend on the services which will be utilized by the Foreign principal does not make it as dependent agent”.

The Bench further explained that for an entity to be considered an agent, it should be able to replace the principal in executing any contract and should have the similar level playing role or rights in execution of such contracts.

Highlighting that the Indian AE does not have any licence from IRDAI to undertake reinsurance business or even to act as a reinsurance broker, the Bench clarified that it can never be allowed to act as an agent in India, not even to assume or conclude contract on behalf of the Assessee.

Advocate Anish Thacker appeared for the Assessee while Revenue was represented by Advocate Ajay Kumar Sharma.

Briefly, the Assessee, an Ireland based Insurance Company, is engaged in providing reinsurance services for life insurance. On the other hand, although its Indian AE (RGA India) does not have a licence from IRDAI to undertake reinsurance business or to act as reinsurance broker, however, it provides support services to Assessee’s operation in and outside India and services to other group entities operating outside India.

During relevant year, the Assessee received premium of Rs.435.14 crore and claimed the same as business income not taxable in India, in the absence of a PE in India. The AO however, was of the opinion that Indian AE acted as a fixed place PE and Dependent Agent PE of the Assessee in India, and thus held its income is taxable in India. Accordingly, the AO held that 50% of Assessee’s reinsurance income is attributable to India and determined the profit attributable to Indian PE to be 10% of the 50% of the gross reinsurance premium received by the Assessee.

After considering the submission, the Coram noted that the Assessee had entered into a reinsurance support services agreement with its Indian AE, for obtaining business support services including underwriting/ actuarial support, risk profiling, data synopsis and suggestions for underwriting proposals along with marketing support such as marketing research, customer relationship management and administrative assistance for which the Indian AE was compensated at cost plus 12.50%.

Finding that RGA India does not assume any risk and can never be allowed to function as a reinsurer or broker in India to replace the principal, the Coram held that it cannot be considered as Dependent Agent PE of the Assessee.

The Bench further observed that the Revenue had failed to bring any material on record to show that RGA India assumed any risk or invested in any assets in executing the functions for reinsurance.

“RGA India, even though performed various function in line of Assessee’s reinsurance business for which it is properly compensated and which has been accepted in the transfer pricing assessment, it cannot be considered to be Assessee’s DAPE as it did not take any risk or invested any assets”, added the Bench.

Accordingly, the ITAT concluded that RGA India is not a Dependent Agent PE as it is not capable to act as an agent since it did not have the licence from IRDAI and the reinsurance agreements were signed outside India.

Cause Title: RGA International Reinsurance Company vs. DCIT (Intl. Taxation) [ITA No. 803 & 2330/MUM/2022 / 2023-Enterslice-25-ITAT-Mum]

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