• Service: Tax, Global Compliance Management Services, International Tax
  • Type: Regulatory update
  • Date: 2/26/2014

India - R&D deduction approvals; services under Philippine tax treaty 

February 26:  The KPMG member firm in India has prepared reports on the following developments (read the February 2014 reports by clicking on the hyperlinks provided below):
  • No AAR jurisdiction unless there has been a transaction or proposed transaction (not a mere intention) - India’s Authority for Advance Rulings (AAR) concluded that it does not have jurisdiction unless there has been a transaction or a proposed transaction entered by the applicant with Indian companies. For these purposes, the term “transaction” or “proposed transaction” is not the same as a “mere intention.” Here, the applicant intended to invest in a 100% subsidiary company in India for purposes of transactions with a partnership. The AAR concluded that the subsidiary company must exist in reality and the partnership must be established in order to make transaction or proposed transaction of the applicant with the Indian company or subsidiary.

    The case is: Trade Circle Enterprises LLC. Read a February 2014 report [PDF 278 KB]

  • R&D deduction available even though approval not signed by appropriate authority - The Mumbai Bench of the Income-tax Appellate Tribunal held that a taxpayer’s claim for a deduction concerning a scientific research expenditure incurred on in-house scientific research facility (R&D facility) cannot be denied, even though the order of approval on Form 3CM was not granted by the Secretary, Department of Scientific and Research (DSIR), but by an officer on behalf of the Secretary, DSIR, provided all other conditions for approval are fulfilled by the taxpayer.

    The case is: Fermet Biotech Ltd. Read a February 2014 report [PDF 323 KB]

  • Payments to a Philippine company for business information services are not taxable, absent a FTS clause under the income tax treaty and absent a PE in India - The Bangalore Bench of the Income-tax Appellate Tribunal held: (1) business information services, work-force management services, and other services provided by Philippine company were in the course of its business; (2) a specific article concerning these services—a fees for technical services (FTS) article—was absent from the India- Philippines income tax treaty; (3) payments for these services, therefore, were subject to Article 7, Business Profits, of the tax treaty; and (4) because the foreign company did not have a permanent establishment (PE) in India, such business profits were not subject to tax in India.

    The case is: IBM India Private Ltd. Read a February 2014 report [PDF 473 KB]

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