India: Tax treatment of payments made to foreign entities

India: Tax treatment payments made to foreign entities

The KPMG member firm in India has prepared reports about the following tax developments (read more at the hyperlinks provided below).

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  • Tax treatment of payments to foreign entities for testing and certification services: The Delhi Bench of Income-tax Appellate Tribunal—in a case concerning the tax treatment of testing and certification services provided by foreign entities—held that payments made by the taxpayer in India to various foreign entities (located in the United States, the Netherlands, China, and Germany) for testing and certification of its products were not taxable or alternatively were taxable, depending on the location of the foreign entity. The tribunal held that amounts paid to U.S. and Dutch entities were not taxable in India because these services did not satisfy the “make available” condition specified under Article 12 of the applicable income tax treaties. However, the tribunal found payments for services made to the German and Chinese entities were taxable as “fees for technical services” in India. Concerning other issues, the tribunal held that the 30% disallowance under Section 40(a)(ia) of the Income-tax Act, 1961 on payments made to a resident without withholding of tax at source did not apply to payments made to a non-resident, and that the payment of non-compete fees was a capital expenditure for which depreciation was not allowed. The case is: Havells India Ltd. Read a September 2020 report [PDF 309 KB]

  • Taxpayer eligible for refund of tax withheld at source even when corresponding income from offshore supply not taxable in India: The Bangalore Bench of Income-tax Appellate Tribunal held that the taxpayer was eligible for a refund of tax withheld at source credit even when the corresponding income was not taxable in India. The tribunal observed that the amount received from the offshore supply of equipment was not taxable in India, but that the withheld tax was refundable. The case is: ABB AB. Read a September 2020 report [PDF 330 KB]

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