India: Services not taxable under treaty with Sweden; technical explanation of U.S. tax treaty not binding

India: Services not taxable under treaty with Sweden

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

  • Consultancy services held not taxable as fees for technical services; “most favoured nation” clause and tax treaty with Sweden: The Mumbai Bench of the Income-tax Appellate Tribunal held because of the “most favoured nation” clause in India’s income tax treaty with Sweden, consultancy services provided by the Swedish taxpayer to its Indian subsidiary were not taxable as fees for technical services in India. The tribunal’s decision observed that under India’s income tax treaty with Portugal, fees for technical services are not taxable unless technical services “make available” technical knowledge, experience, skill, know-how or process and that this “make available” standard triggered application of the “most favoured nation” provision of the treaty with Sweden with the result that the consultancy services were not taxable in India. The case is: SCA Hygiene Products AB. Read a January report [PDF 278 KB]

  • Taxing distribution rights of channels granted by U.S. media company; technical explanation of tax treaty with United States held not binding: The Mumbai Bench of the Income-tax Appellate Tribunal held that distribution rights granted by the U.S. taxpayer to an Indian subsidiary were only commercial or broadcast reproduction rights—and not a copyright—and consequently, consideration for the rights was not to be treated as a royalty or fees for included services under the India-United States income tax treaty. The tribunal observed that a technical explanation of the treaty (of the U.S. Treasury Department) was not the same is not the official protocol or clarification and thus was not binding on the tribunal. The case is: NGC Network Asia LLC. Read a January report [PDF 293 KB]

  • Bonus shares: The Karnataka High Court held that the issuance of bonus shares did not involve any inflow of funds or increase in the capital structure of the company, but merely involved capitalisation of existing reserves. Therefore, with bonus shares being issued, nothing comes to the shareholders because there is no transfer of property. The case is: Dr. Ranjan Pai. Read a January report [PDF 386 KB]

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