The Authority for Advance Ruling (AAR) has recently held that the fees paid by Indian Company for technical services of a foreign Company will not be taxed in India under the India-Singapore Treaty (“Treaty”). The rationale given behind this decision is that advisory services such as comments and suggestions do not fall within the purview of the term ‘Fee for Technical Services’ under Article 12 of the treaty. This ruling of AAR came in the wake of the application filed by the Bharati AXA General Insurance Co. Ltd. (“BAGICL”) to know that if the foreign Company AXA ARC has any liability to pay tax in India in respect of the fee received from the BAGICL.
This ruling has come as a relief to those foreign companies who render support services so as to ensure uniformity and flawless quality in the business dealings of the group entities. Further, this ruling can provide some respite to the companies which do not have a permanent establishment in India as this ruling also state that the payment received by the companies having no permanent establishment in India cannot be taxed as business profits under the Treaty.
It has been noted that AAR has decided similar issues in the application filed by Ernst & Young Pvt Ltd (AAR No. 820 of 2009) on the above lines.
We would like to remind our readers that although the ruling is binding to the parties appear before the authority and the transaction in relation to which the ruling was given because the ruling was rendered on a set of facts and cannot be of general application. However, it may have persuasive value.
Our tax advisor is a financial expert specially trained in tax law.Some countries require tax advisors to verify the balance sheets of companies above a certain size. Individuals usually require tax advisors to minimize taxation, to avoid learning the details of tax law in complicated financial situations themselves, or to learn the details of tax law from a professional advisor.
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