Single entity approach

Under this taxation principle, a foreign enterprise and its permanent establishment are viewed as a single taxable unit. Although the head office and the PE may maintain separate accounts for regulatory or managerial purposes, the tax system treats them as parts of the same enterprise rather than as distinct legal persons.

Example: Consider a foreign corporation with a branch operating in India. The branch may keep its own financial statements for reporting clarity, but for income-tax assessment the branch’s profits are simply regarded as profits of the foreign company itself. Unlike a subsidiary, a branch does not have its own legal personality, so the company and its PE are assessed as one entity.