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PE Risk for Global Capability Centres in Hyderabad: Structuring and Practice
Why permanent establishment risk matters for Hyderabad's global capability centres, where it usually arises, and practical steps to manage it.
Hyderabad is one of the world's leading locations for global capability centres — Indian subsidiaries providing technology, engineering, analytics and business services to their foreign parents. The model is well understood, but as GCCs take on more strategic work, permanent establishment questions for the foreign parent become more relevant. This guide explains where the risk lies.
The Standard Model
A typical GCC is an Indian private company, owned by the foreign group, providing services to group companies on a cost-plus basis. On its own, this is a separate entity paid at arm's length, and doesn't create a PE for the parent.
Where PE Risk Creeps In
Leaders who act for the parent
As GCCs grow, senior leaders in Hyderabad often hold global roles — heading functions for the whole group, approving contracts, or negotiating with customers on the parent's behalf. If they habitually conclude contracts, or play the principal role in doing so, for the foreign parent, a dependent agent PE could be alleged.
Parent staff working from the GCC
Foreign employees of the parent working from GCC premises for extended periods, on the parent's own business, could create a fixed place or service PE for the parent.
Secondments
Employees seconded from the parent who remain under the parent's direction can raise service PE questions.
Customer-facing work
GCCs increasingly work directly with the group's customers, which can blur the line between serving the group and acting for it.
Transfer Pricing Link
Paying the GCC at arm's length for its functions reduces PE exposure, since profit attributable to any PE may then be limited. But as the GCC's role becomes more strategic, cost-plus remuneration may need revisiting.
Practical Steps for GCCs
- Define clearly which contracts GCC staff can sign, and for which entity.
- Track days spent by parent employees in India.
- Structure secondments so the GCC directs the secondee's work.
- Keep intercompany agreements aligned with actual roles.
- Revisit transfer pricing as the GCC's functions evolve.
Getting Help
Think Filing reviews GCC operating models in Hyderabad for PE and transfer pricing risk.