• Service: Tax, Global Compliance Management Services, International Tax
  • Type: Regulatory update
  • Date: 7/26/2013

India - Branch’s sale support activities do not create PE 

July 26: The KPMG member firm in India prepared reports on the following developments (read the July 2013 reports by clicking on the hyperlinks provided below):
  • Stock derivative loss not carried forward and applied against (non-speculative) business income - The Delhi High Court held: (1) a determination of a stock derivative’s value depends on the shares and that section 73 of the Income Tax Act, 1961, applies to the derivative business; (2) the loss from derivative transactions is not carried forward and set off against (non-speculative) business income; (3) eligible derivative transactions on recognized stock exchanges are not treated as speculative transactions for business income computation purposes; and (4) while such an exclusion may be relevant for computation of business income, it is not relevant with respect to the statutory provision concerning setoffs and loss carryforwards.

    The case is: DLF Commercial Developers Ltd. Read a July 2013 report [PDF 203 KB]

  • Indian branch providing pre-sale activities and post-sale support for products supplied by parent and overseas group companies not a dependent agent PE; absent a PE, the “force of attraction rule” under income tax treaties does not apply - The Mumbai Bench of the Income-tax Appellate Tribunal held that an Indian branch is not a dependent agent permanent establishment (PE) of its U.S. parent and overseas group companies under the income tax treaties because the Indian taxpayer: (1) does not have authority to negotiate or conclude contracts on behalf of the foreign companies; (2) does not maintain a stock of goods sold by the foreign companies; and (3) does not secure orders on behalf of foreign companies in India. Thus, the taxpayer does not have dependent agent PE status under the tax treaty, and the profit attributable to the foreign enterprises is not taxable in India. Also, because the taxpayer is not a PE, the profits of the foreign enterprise also are not taxable in to the taxpayer under the “force of attraction rule” contained in the income tax treaties.

    The case is VIPL India. Read a July 2013 report [PDF 225 KB]

  • Fees for employee training services did not satisfy “make available” condition under the India-UK income tax treaty and therefore not taxable in India - The Ahmedabad Bench of the Income-tax Appellate Tribunal held that employee training services (e.g., in-house training of IT staff and medical staff and also market awareness and development training) rendered by a UK service provider are general in nature and did not involve any transfer of technology. Accordingly, such training services did not “make available” technical knowledge, experience, skill, know-how or processes as required under the India-United Kingdom income tax treaty, and are not taxable as “fees for technical services” under Article 13(4)(c) of the tax treaty.

    The case is: Veeda Clinical Research Pvt Ltd. Read a July 2013 report [PDF 126 KB]

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