© 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated...
© 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated...
© 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated...
Upcoming SlideShare
Loading in …5
×

AAR holds that fees paid to Sri Lankan executive for promotion of sales and brand name is not FTS under the Income-tax Act. Further the fees are not taxable under ‘Independent Personal Services’ Article under the Sri Lanka tax treaty

185 views
174 views

Published on

Recently, the Authority for Advance Rulings in the case of Oxford University Press (the applicant) held that services rendered by a non-resident (the Executive), for promotion of sales and brand name of the applicant in Sri Lanka, are not managerial, technical or consultancy services under the provisions of the Income-tax Act, 1961 (the Act). During the relevant year, the India – Sri Lanka tax treaty (the tax treaty) did not contain Article on ‘Fees for Technical Services’. Though the payment is covered under Article 14 dealing with Independent Personal Services of the tax treaty however, the same is not taxable in India. Accordingly, the payment made to the Executive is not taxable either under the Act or under the tax treaty.

Published in: Education
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
185
On SlideShare
0
From Embeds
0
Number of Embeds
32
Actions
Shares
0
Downloads
2
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

AAR holds that fees paid to Sri Lankan executive for promotion of sales and brand name is not FTS under the Income-tax Act. Further the fees are not taxable under ‘Independent Personal Services’ Article under the Sri Lanka tax treaty

  1. 1. © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG FLASH NEWS KPMG IN INDIA AAR holds that fees paid to Sri Lankan executive for promotion of sales and brand name is not FTS under the Income-tax Act. Further the fees are not taxable under ‘Independent Personal Services’ Article under the Sri Lanka tax treaty 30 May 2014 B Background Recently, the Authority for Advance Rulings (AAR) in the case of Oxford University Press 1 (the applicant) held that services rendered by a non-resident (the Executive), for promotion of sales and brand name of the applicant in Sri Lanka, are not managerial, technical or consultancy services under the provisions of the Income-tax Act, 1961 (the Act). During the relevant year, the India – Sri Lanka tax treaty (the tax treaty) did not contain Article on ‘Fees for Technical Services’ (FTS). Though the payment is covered under Article 14 dealing with Independent Personal Services of the tax treaty however, the same is not taxable in India. Accordingly, the payment made to the Executive is not taxable either under the Act or under the tax treaty. ________________ 1 Oxford University Press., In re [2014] 45 taxmann.com 282 (AAR) Facts of the case  The applicant is an Indian branch of Oxford University Press, U.K., and is engaged in publishing, printing and reprinting of educational books for schools, Universities, etc.  The applicant has appointed Ms Geetha as ‘Resident Executive’, a resident of Colombo, Sri Lanka and she is carrying on duties and responsibilities exclusively for the applicant.  She is being paid remuneration and reimbursement of expenses as per her letter of appointment, which is remitted to her Bank account in Colombo from the applicant’s bank account in India. AAR ruling  The purpose of Ms Geetha’s job is to be responsible for achieving the sales and collection budgets in the territory assigned through planning and aggressive promotion of the relevant titles covering Indian school books, etc.
  2. 2. © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.  Principal accountabilities of her job were to achieve the given sales and collection targets on time, to grow existing market share by maximizing adoptions and developing new markets, to enhance Oxford University Press (OUP) Brand image, etc.  Main duties and responsibilities of her job included, providing value added services in terms of workshops and other educational activities, to get more business and collection within the credit limit, to be aware of competitor’s product, etc.  Based on the above, the services rendered are basically for promotion of sales and brand name of the applicant in Sri Lanka. The job description fits in more with a marketing executive.  There is no definition of technical services in the tax treaty and therefore, in order to examine whether the payment is FTS, the AAR had to resort to provisions of the Act.  The services rendered by Ms Geetha, do not fall under Explanation 2 to section 9(1)(vii) of the Act, namely, managerial, technical or consultancy services and therefore, are not technical services as defined in the Act.  Ms Geetha is a non-resident in India and the services are rendered outside India.  Accordingly, the payment made to Ms Geetha is not taxable either under the Act or under the tax treaty.  Though the payments falls under Article 14 (Independent personal services) of the tax treaty, the same is not taxable in India.  The reimbursement of expenses are directly linked with her services in Sri Lanka for the applicant. Based on the same reason as discussed above, the reimbursement of those expenses will also not be taxable in India under the provision of the Act or under the tax treaty. Our comments This decision pertains to a period when the India-Sri Lanka tax treaty did not contain an article on FTS. Accordingly, the AAR examined the taxability of fees paid to Sri Lankan executive under Article-14 i.e. Independent Personal Services and held that it was not liable to tax in India. Recently, the India – Sri Lanka tax treaty has been revised and the FTS has now been included along with royalty under Article 12. As per the revised tax treaty, consideration for managerial or technical or consultancy services, including provision of services of technical or other personnel would be taxable at the rate of 10 per cent. The taxpayer will now be required to consider whether the service is in the nature of FTS under the tax treaty. However, in the present case, based on the facts, the AAR held that the services are not in the nature of managerial, technical or consultancy services and therefore, not taxable as FTS under the Act. Even though the decision of the AAR is legally binding only on the parties involved in a particular case, the ruling would have a persuasive value in similar matters before the Indian tax authorities and Courts.
  3. 3. © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity“ are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. www.kpmg.com/in Ahmedabad Commerce House V, 9th Floor, 902 & 903,Near Vodafone House,Corporate Road, Prahlad Nagar, Ahmedabad – 380 051 Tel: +91 79 4040 2200 Fax: +91 79 4040 2244 Bangalore Maruthi Info-Tech Centre 11-12/1, Inner Ring Road Koramangala, Bangalore 560 071 Tel: +91 80 3980 6000 Fax: +91 80 3980 6999 Chandigarh SCO 22-23 (Ist Floor) Sector 8C, Madhya Marg Chandigarh 160 009 Tel: +91 172 393 5777/781 Fax: +91 172 393 5780 Chennai No.10, Mahatma Gandhi Road Nungambakkam Chennai 600 034 Tel: +91 44 3914 5000 Fax: +91 44 3914 5999 Delhi Building No.10, 8th Floor DLF Cyber City, Phase II Gurgaon, Haryana 122 002 Tel: +91 124 307 4000 Fax: +91 124 254 9101 Hyderabad 8-2-618/2 Reliance Humsafar, 4th Floor Road No.11, Banjara Hills Hyderabad 500 034 Tel: +91 40 3046 5000 Fax: +91 40 3046 5299 Kochi Syama Business Center 3rd Floor, NH By Pass Road, Vytilla, Kochi – 682019 Tel: +91 484 302 7000 Fax: +91 484 302 7001 Kolkata Unit No. 603 – 604, 6th Floor, Tower – 1, Godrej Waterside, Sector – V, Salt Lake, Kolkata 700 091 Tel: +91 33 44034000 Fax: +91 33 44034199 Mumbai Lodha Excelus, Apollo Mills N. M. Joshi Marg Mahalaxmi, Mumbai 400 011 Tel: +91 22 3989 6000 Fax: +91 22 3983 6000 Pune 703, Godrej Castlemaine Bund Garden Pune 411 001 Tel: +91 20 3050 4000 Fax: +91 20 3050 4010

×