viernes, 10 de junio de 2016

India: Supreme Court clarifies definition of fees for technical services

In a decision published on 31 March 2016 (Commissioner of Income-tax v. Kotak Securities Ltd), India’s Supreme Court held that where a service is not customized to the needs of the customer and is indistinguishable from a common “facility” provided to all customers of the service provider, payments for that service cannot be considered fees for technical services (FTS) that are subject to withholding tax in India under India’s domestic law.
The taxability of FTS has been a long-standing issue in India. FTS is defined under domestic law to include income received for rendering technical, consultancy or managerial services; however, the terms “technical,” “consultancy” and “managerial” do not have any specific meaning or scope attached to them. The absence of a specific delineation of the boundaries between these terms has given rise to disputes between taxpayers and the tax authorities, and although courts and tribunals have tried to define these terms in their decisions, there is still some lack of clarity.
The Supreme Court’s decision in the Kotak case helps clarify the scope of technical services. The court considered the treatment of transaction fees paid to the Bombay stock exchange by its members, which the lower court had treated as FTS. The court held that for a service to qualify as a technical service, the following elements are necessary:

  • The service must be customized to cater to the specific needs of the service recipient; and
  • The service must not be a common facility that is available for the use of every customer of the service provider.

The court determined that the transaction fees paid to the stock exchange did not satisfy these criteria because there was no customization of the service based on the needs of the customer and all members had to use the same service to trade on the stock exchange; accordingly, the payments did not qualify as FTS taxable under India’s domestic law.

Source: Deloitte

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