The Taxman comes clicking! LinkedIn profiles of employees admissible as evidence to determine PE issue: Tax Tribunal (August 2014)

In an interesting order, the Delhi Bench of Income-Tax Appellate Tribunal ruled in favor of the Revenue and decided that additional evidence in the form of LinkedIn profiles of employees of the Taxpayer can be considered ‘relevant evidence’ to determine if the Taxpayer had a Permanent Establishment in India or not. The interim order of the Tribunal admitting LinkedIn profiles as admissible evidence was given in the case of GE Energy Parts Inc. However, the final ruling on whether and to what extent a PE risk existed has not yet been pronounced.

As might be expected, the counsel from Taxpayer’s end tried to persuade the Tribunal that LinkedIn profiles were not relevant to determine the issue relating to existence of a PE. Challenge to filing of additional evidence in the form of LinkedIn profiles was made on various grounds viz. a) Revenue cannot try to ‘improvise’ its case at the level of the Tribunal b) the evidence was being produced too late in the day c) the LinkedIn profiles represented hearsay evidence and d) employees were prone to make exaggerated claims in their profiles.

However, the Tribunal ruled that technical objections should not come in the way of cause of justice. The Tribunal was also  influenced by the fact that the Taxpayer had not submitted critical information relating to the role of its employees when the same was called for by the Revenue officer. While admitting the evidence, the Tribunal also left it open to the Taxpayer to rebut the information by bringing on record contrary facts.

Irrespective of which way the final ruling goes, the decision highlights the fact that Technology could be a double-edge sword – while facilitating easy conduct of business from any corner of the world, it also leaves a digital trail of activities – leaving businesses exposed to the prying eyes of the Taxman.