India: Payments to subcontractor in China taxable as "fees for technical services" under India-China treaty

A tribunal decision concerning "fees for technical services" under India-China treaty

A tribunal decision concerning "fees for technical services" under India-China treaty

The Bangalore Bench of the Income-tax Appellate Tribunal held that subcontracting charges paid by the taxpayer, an Indian company, to its Chinese subsidiary are taxable as "fees for technical services" under the Income-tax Act, 1961 and the India-China income tax treaty.

The taxpayer was engaged in the development and export of computer software and related services and subcontracted certain overseas work in China to its Chinese subsidiary. The taxpayer paid subcontracting charges to the subsidiary but did not withhold (deduct at source) any tax. The taxpayer contended that the payments were taxable as fees for technical services and thus not subject to tax under the Income-tax Act, 1961 or the India-China income tax treaty.

The tribunal agreed with the taxpayer and observed that it is not necessary that the technical services be rendered in India because under the treaty, the services will be deemed to have been accrued in the tax jurisdiction in which the person making the payment is located.

The case is: Infosys Limited v. DCIT.

Read an April 2022 report [PDF 451 KB] prepared by the KPMG member firm in India

 

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