Consultancy technology transfer tax perspective

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Consultancy technology transfer tax perspective

  1. 1. CONSULTANCY & TECHNOLOGY TRANSFER: TAX PERSPECTIVE DHANYA N. MENON ALTACIT GLOBAL http://www.dvd-ppt-slideshow.com
  2. 2. WHAT IS TECHNOLOGY TRANSFER? <ul><li>process of sharing of skills, knowledge, technologies, methods of manufacturing, samples of manufacturing and facilities </li></ul><ul><li>among governments and other institutions </li></ul><ul><li>to ensure that scientific and technological developments are accessible to a wider range of users </li></ul><ul><li>who can then further develop and exploit the technology into new products, processes, applications, materials or services </li></ul>
  3. 3. FUNCTION <ul><li>Coordinate </li></ul><ul><li>Nurture </li></ul><ul><li>Link </li></ul>
  4. 4. INCLUDES : <ul><li>processing and evaluating invention disclosures </li></ul><ul><li>technology marketing </li></ul><ul><li>Licensing </li></ul><ul><li>protecting intellectual property arising from research activity </li></ul><ul><li>assisting in creating new businesses </li></ul>
  5. 5. <ul><li>Tax issues arise in International Technology Transfer (ITT) </li></ul><ul><li>Three major players: </li></ul><ul><li>- Home Country: Technology Exporting </li></ul><ul><li>Country </li></ul><ul><li>- Host Country: Technology Importing </li></ul><ul><li>Country </li></ul><ul><li>- Multi National Companies </li></ul>TAX ISSUES
  6. 6. MULTINATIONAL FIRMS, TAXATION & TT <ul><li>Methods of providing new technologies to the country in which they invest: </li></ul><ul><li>1. developing new technologies locally </li></ul><ul><li>2. Import technology </li></ul><ul><li>The R & D expenditure is liable to tax with some deductions </li></ul><ul><li>Income arising to non-residents (including foreign companies), directly or indirectly from a business connection, from any property in India, or transfer of a capital asset situated in India, would be subject to tax in India. </li></ul>
  7. 7. TAX POLICIES AND TT <ul><li>Affects: </li></ul><ul><li>1. Increases the cost of actual transfer </li></ul><ul><li>2. reduces the subsequent return to the transferor </li></ul><ul><li>Falls under: </li></ul><ul><li>business profits, </li></ul><ul><li>fees for services, </li></ul><ul><li>rents and royalties, </li></ul><ul><li>dividends and capital gains, and </li></ul><ul><li>employees’ salaries </li></ul>
  8. 8. <ul><li>Royalty: consideration for transfer of rights in respect of or for use of intellectual property </li></ul><ul><li>Taxable in the hands of non-residents if the same are received in or accrued in India. </li></ul><ul><li>Fees for technical services: any consideration for the rendering of any managerial, technical or consultancy services </li></ul><ul><li>Taxable in the hand  of non-residents if the same is received in India or it accrues in India. </li></ul><ul><li>Payment of royalty abroad for use of a trademark in India will result in taxes in India </li></ul>
  9. 9. <ul><li>all incomes accruing or arising, whether directly or indirectly, through the transfer of a capital asset situated in India is liable to Income-tax. </li></ul><ul><li>intangible assets like trademarks, brand-names etc shall be taken as located in India if they are used in India. </li></ul><ul><li>Their place of registration in this context is not material . </li></ul>
  10. 10. NOTIFICATION 18/2002 – SERVICE TAX <ul><li>taxable services provided by a consulting engineer to a client on transfer of technology are exempted from service tax to the extent of the amount of cess paid on the said transfer of technology </li></ul>
  11. 11. <ul><li>The Service Tax is leviable only on the taxable services supplied within India </li></ul><ul><li>taxable services exported outside India are not leviable to service tax and therefore, exempt. </li></ul><ul><li>a Management Consultant or a Consulting Engineer provides the consultancy service to a foreign company situated outside India, it will constitute direct export. </li></ul>
  12. 12. <ul><li>Indian Farmers Fertilizer Co-Operative Ltd. vs </li></ul><ul><li>Commissioner Of Central Excise on 26/12/2006 </li></ul><ul><li>IFFO obtained license to use of Topsoe’s technology for </li></ul><ul><li>redesigning and modifying the operation of its ammonia </li></ul><ul><li>and urea plants at U.P. to make the plants more energy </li></ul><ul><li>efficient- tax payable in India-transaction was one for </li></ul><ul><li>transfer of know-how/intellectual property which could </li></ul><ul><li>be sold or licensed and not a service-purchase of </li></ul><ul><li>imported goods-technical assistance was incidental </li></ul><ul><li>Contented: technical assistance was meant to be provided </li></ul><ul><li>at the plants situated in India-transfer of know –technical </li></ul><ul><li>assistance was not subsumed within the know-how </li></ul>
  13. 13. <ul><li>Neither was the transaction completely one for transfer of know-how nor was it entirely for provision of services. It was for both; also, the agreements envisaged two separate methods of payment for each of the components. Therefore, since only a portion of the outstanding tax liability of Rs.14.5 lakhs was for technical assistance, only such portion could be recovered from IFFCO. </li></ul>

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