India: Reimbursement of expenditures involving Singapore company

India: Reimbursement of expenditures

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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  • Reimbursement of expenditures to Indian branch of Singapore company not withholding tax at source: The Pune Bench of Income-tax Appellate Tribunal decided a case concerning tax withheld (deducted) at source on reimbursement of certain expenditures made by an Indian branch to a Singapore entity. The tribunal held that two fundamental conditions must co-exist in order to allow the reimbursement: (1) one-to-one direct correlation between the outgo of the payment and inflow of the receipt must be established; and (2) the receipt and payment must be identical in amount. The tribunal held that the reimbursement of seminar, training, printing, and staff welfare expenditure satisfied both conditions and therefore, tax was not required to be withheld at source under section 195 of the Income-tax Act, 1961. The case is: BYK Asia Pacific Pte. Ltd. Read a March 2021 report [PDF 325 KB]

  • Rules for exempt registration of educational institutions, funds, trusts, hospitals: The Central Board of Direct taxes (CBDT) issued a notification amending the Income-tax Rules 1962 and the procedure and forms with respect to compliance, registration, and approvals of educational institutions, funds, trusts, hospitals, etc. The new forms include a requirement for a digital signature. Read a March 2021 report [PDF 309 KB]

  • Benefits under tax treaty with Netherlands not available to Netherlands-based fiscally transparent fund: The Authority of Advance Ruling (AAR) decided a case concerning eligibility of India-Netherlands income tax treaty benefits to Netherlands-based fiscally transparent funds. The AAR ruled that income arising to investment funds from investment made in securities in India out of contributions made by participants are to be assessed in the hands of funds, and given that the funds are fiscally transparent non-taxable entities in Netherlands, they are not eligible for the benefit of Article 13 of the income tax treaty because the funds do not qualify as a resident under the tax treaty. In order to qualify as a “resident of a contracting State,” the funds must qualify as a “person” under the tax treaty, and because a custodian cannot be considered as a responsible entity of funds, the tax treaty benefits are not available for the custodian. The case is: In re ABC. Read a March 2021 report [PDF 297 KB] 

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