• Service: Tax, Global Transfer Pricing Services, Global Compliance Management Services, International Tax
  • Type: Regulatory update
  • Date: 10/31/2013

India - Loan facilitation services, fees of foreign branches 

October 31: The Mumbai Bench of the Income-tax Appellate Tribunal held that:
  • Services provided by a taxpayer bank were “crucial services” and inevitable for the decision-making for loans provided by the taxpayer’s foreign branches.
  • The services were not a “mere facilitation” for concluding or signing of the loan agreements, as specified by provisions of a Protocol to the India-France income tax treaty.

The tribunal upheld the order of the Commissioner of Income-tax (Appeals) [CIT(A)] to attribute 20% of the fees charged by foreign branches as agent fees, commitment fees, and arrangement fees, finding that the adjustment could apply for such fees only. The tribunal, however, excluded the interest charged by the foreign branches from the adjustment calculation because the taxpayer had not contributed to the loan amount. Credit Lyonnais v. ADIT (ITA No. 1935/Mum/2007)


The taxpayer facilitated foreign currency loans to its foreign clients from overseas branches, but did not report any income from these transactions. The services were rendered and negotiations made by a syndication desk in Hong Kong. All legal transactions were conducted in Hong Kong. The taxpayer provided financial analysis of the borrower and analysis of general market conditions in India.

The Transfer Pricing Officer computed the arm’s length charges to be 25% of the total amount of interest and fees received by the offshore branches. The CIT(A) reduced the adjustment to 20%.

The tribunal upheld the 20% rate, but held that this would apply only with respect of the fees and changes, and not the interest received by the foreign branches.

Read an October 2013 report [PDF 443 KB] prepared by the KPMG member firm in India: The Mumbai Tribunal upheld attribution of 20 percent of fees and other charges after excluding interest charged by foreign branches, as appropriate compensation for the Indian branch

Contact a tax professional with KPMG's Global Transfer Pricing Services.

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