India Singapore Tax Treaty: Tax waiver for Advisory services

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.

No “Minimum Alternate Tax” for Companies without local base

According to the recent verdict of Authority for Advance Ruling Minimum alternate Tax (MAT) is not payable by foreign Companies not having a permanent establishment in India.

Minimum alternate Tax (MAT) is a levy typically aimed at collecting tax from Companies enjoying exemptions. Minimum alternate Tax under 115JB of the Income Tax Act was incorporated with the specific purpose of bringing under the tax net companies that avoid paying tax by taking advantage of the various incentives offered by the Government.

The AAR’s verdict, dated July 23, 2010, was on an application filed by Mauritius-based Praxair Pacific. The foreign company asked AAR to clarify whether it is liable to pay MAT under Section 115 JB of the Income-Tax Act, on account of the transfer of shares to its Indian subsidiaries. The Mauritius company was proposing to transfer 74% of its shareholding in Indian subsidiary Jindal Praxair to its wholly-owned Indian subsidiary Praxair India.


The AAR clarified that Praxair Pacific is not liable to pay MAT in India. AAR contention is based on Section 115 JB of Income-Tax Act which is not applicable to foreign companies. The AAR pointed out that amendments in Section 115 JB brought in by the 2002 Finance Bill had clarified that MAT is applicable only to domestic companies. The AAR further said that Section 115 JB of Income-Tax Act is not designed to be applicable to a foreign company who has no presence or permanent establishment in India.