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Technical advice made by UK Co. to employees of its Indian subsidiary held as FTS under Article 13 of India-UK DTAA

February 16, 2021[2021] 124 taxmann.com 337 (AAR - New Delhi)
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INTERNATIONAL TAXATION : Payment made by Indian subsidiary to UK company under Management Service Agreement for services specified thereunder would be characterised as 'fee for technical services' (FTS) under article 13(4) of Indo-UK DTAA only in respect of 'direct technical advice, support and management including implementation service' provided by UK company under Information Technology service; it would suffer withholding tax under section 195

• Applicant UK Company entered into a Management Service Agreement (MSA) with its Indian subsidiary Aircom India whereby applicant would provide various Management Support Services to Aircom India with a view to rationalize and standardize business conducted by Aircom India in India by providing establishment and set-up advance and services; general management advice and services; group bulk purchasing arrangement; group-led sales, marketing and business development services; general treasury and financial management advice and services; and legal, Human resource, Information Technology (IT) services.

Ruled that

-   Payment made by Aircom India to applicant under MSA for services specified thereunder would be characterised as 'fee for technical services' (FTS) under article 13(4) of convention between India and UK only in respect of 'direct technical advice, support and management including implementation' service provided under Information Technology (IT) service. Other services rendered under MSA are not found taxable under the convention.
-   Payments under MSA are not in nature of 'Royalty' within meaning of term in article 13 of India-UK Treaty.
-   Payments received by applicant are not business income.
-   Payments made by Aircom India to applicant would suffer withholding tax under section 195 only in respect of component of 'direct technical advice, support and management including implementation' service provided under Information Technology (IT) service at applicable rate.
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