Foreign co's fees for work sent to India not taxable

[OhioChick]

1 Mar 2010, 1940 hrs IST, Souvik Sanyal, ET Bureau

NEW DELHI: The Authority of Advance Rulings (AAR) has ruled that fees received by a foreign company for assigning contractual rights to an Indian entity is not taxable in India.

The ruling of the AAR –– a quasi-judicial forum deciding queries on matters of international taxation — came on a query from an Indian company that had paid a foreign company for assigning part of a global contract with Nokia Corporation for supplying equipment.

Laird Technologies Inc, USA had entered into a product purchase agreement (PPA) with Nokia Corporation. It entered into an assignment agreement with India-based Laird Technologies Pvt Ltd, under which all its beneficial rights, title, interest and obligations were made in favour of the Indian firm. The US company was paid a lump sum as assignment fee.

The AAR was asked if the assignment fees received by the US company was taxable under the Indian law. The AAR held that consideration received for assignment of contractual rights should be treated as business profits and hence was not taxable in India. It also held that in the absence of a permanent establishment for the US company, Laird India was also not required to withhold tax under the income-tax law while making the remittance of the fees.

While rulings of AAR are binding only on the applicant, it has a persuasive value on courts and the tax authorities do recognise the principles laid down by it while deciding similar cases.


More: http://economictimes.indiatimes.com/personal-finance/tax-savers/tax-news/Foreign-cos-fees-for-work-sent-to-India-not-taxable/articleshow/5629504.cms