8 July 2014
EY Tax Alert
Tribunal admits contents of LinkedIn profiles of employees as
additional evidence for PE determination of employer
Executive summary
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This Tax Alert summarizes the recent interim order of Delhi Income tax Appellate
Tribunal [1] (Tribunal) in case of one of the entities of the GE Group.
The issue before the Tribunal was on admission as additional evidence, the
information gathered from LinkedIn profiles of certain employees of the GE
Group by the Tax Authority for determining whether the concerned GE Group
entity, through its offices or through its Indian affiliate i.e. GE India Industrial
Pvt. Ltd. (Indian affiliate), constituted Permanent Establishment (PE) in India.
The Tribunal admitted the evidence on the ground that same has a considerable
bearing on facts where the taxpayer has not furnished appropriate details which
were sought for. The Tribunal held that these profile details are similar to
statements given by a person and, it cannot therefore be said, to be hearsay
evidence. Further, the taxpayer is free to refute information contained in the
profiles by bringing on record contrary facts to dislodge the claims made by the
Tax Authority. The Tribunal, in this interim order, did not conclude on existence
of the PE and has fixed the matter for further hearing on merits.
[1]
[TS-400-ITAT-2014(DEL)]
Background and facts
Contention of the parties
The Liaison Office (LO) is generally set up by
a foreign enterprise in India as per RBI
regulations to act as a communication
channel between the foreign enterprise and
its suppliers/customers in India. As per RBI
regulations, the activities that can be
undertaken by LO are restricted. An LO is not
permitted to engage in trading or any other
income generating activity in India. Where the
activities of the LO extend beyond permitted
activities, LO may result in triggering taxable
presence for the foreign enterprise in India.
The taxpayer contended as follows:
The Tax Authority conducted a survey at the
premises of LO of one of the overseas entities
of the GE Group in India hinting that the LO
was carrying on income generating activities
in India which resulted in a PE of the overseas
entity in India. The survey indicated that
various expatriates are in charge as business
heads for India level operations. Also, certain
employees were actively involved in
concluding sales activities for the GE overseas
entity in India. Hence, there was allegation
from the Tax Authority that a PE may have
resulted for the overseas entity as a
consequence of these activities.
The Tax Authority had also sought
information from the Indian affiliate on such
expatriate employees, such as duration of
employment, designation, emoluments, basis
of incentives/ bonus, nature of job, duties and
responsibilities, terms and conditions of
employment etc. and specifically for which
overseas entity they were part of the sales
team. There was only a part response from
the Indian affiliate, which contended that the
employees were only acting as a
communication channel for the overseas
entity.
Therefore, in absence of necessary facts, the
Tax Authority sought to adduce as additional
evidence, the data of various expatriate
employees that were available for public
access through social networking website i.e.
LinkedIn, in this case. The taxpayer contested
use of such data as additional evidence.
►
LinkedIn profile of various employees
filed by the Tax Authority has no
probative value what-so-ever and the
said profiles have no relevance to or any
bearing on the issue on hand.
►
Each LinkedIn profile is merely a
particular employee’s appraisal/ vision of
himself/herself and the same does not, in
any way, have the imprimatur or
endorsement or approval directly or
indirectly of his/her employer .
►
Employee’s description of
himself/herself, without further and
detailed inquiry and investigation cannot
possibly form the basis for reaching any
clear, cogent and/or reliable conclusion
with regard to precise nature of the
activities of the entities concerned.
►
LinkedIn is a social networking website;
the information available is only in the
nature of hearsay and cannot be adduced
as evidence.
The Tax Authority contended as follows:
►
LinkedIn profile established that these
employees were very highly qualified,
they have international experience and
have worked at high positions in the GE
Group in India and outside India and they
were responsible for sale of GE products
in India.
►
This information was necessary to
disprove the taxpayer’s claims that such
employees are worth nothing and they
act as a communication channel only and
perform very limited functions.
►
The taxpayer never refuted the evidence
/details obtained by it through the
profiles of employees by filing
employment contracts and other
evidence so as to disprove the contents
as obtained from the LinkedIn profile of
the employees.
Tribunal ruling
The Tribunal admitted LinkedIn profiles as
additional evidence on the basis that it has
considerable bearing on the subject matter of
appeal. While deciding so, the Tribunal
observed as follows:
►
LinkedIn profiles are not in the nature of
hearsay because it is the employee who
himself/herself has given all the relevant
details and the same relates to him/her.
►
These details are similar to statements
given by a person and no third party is
involved in creating these profiles.
►
Admission of such evidence, though not
conclusive, is binding and decisive unless
it is successfully withdrawn or proved to
be erroneous.
►
The taxpayer is free to refute the
information contained in the profiles by
bringing on record contrary facts to
dislodge the claims made in LinkedIn
profiles.
The Tribunal, in its interim order, has not
concluded on existence of PE based on
LinkedIn profiles of employees, but has
allowed admission of content in such profiles
as evidence to decide on the existence of PE.
The fact whether a PE exists or not is the
subject matter of ongoing appeal, which has
been fixed for further hearing on merits.
Comments
Social network platforms such as
LinkedIn are often used by
employees for publishing
professional information, their job
profile, job achievements etc. This
may also include information about
the company they work for and,
hence, nature of presence and
profile of activities of the employer
entity which are made available in
public domain through such
employees. The Tax Authority’s
proactive attitude in mining
information available in public
domain and its use in conduct of tax
audit have been highlights of recent
trend in tax administration across
the globe and India is no exception.
It is true that the Tax Authority is
obligated to grant opportunity of
hearing to the taxpayer before any
such information is used against the
taxpayer. The onus of substantiating
facts and refuting any such contents
with better evidence is on the
taxpayer. This also highlights the
need for appropriate health check of
such information on a
contemporaneous basis to avoid
scope for unintended tax
challenges.
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