India: Supply management services; amounts to forego legal actions

India: Supply management services

The KPMG member firm in India has prepared reports about the following tax developments (read more at the hyperlinks provided below):

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  • Fees for supply management services not taxable as fees for technical services or as royalty under India-UK tax treaty: The Authority for Advance Rulings (AAR) concluded amounts received by a foreign company for rendering supply management services to its Indian group company are not to be treated under the India-United Kingdom income tax treaty as (1) fees for technical services because the foreign company did not make available any technical knowledge, experience or know-how; or (2) a royalty because the services were not related to the use of any copyright, patent, trademark, design or model, plan, secret formula or process.  The AAR case is: Cummins Ltd. Read a January 2016 report [PDF 307 KB] 
  • Settlement amount received by foreign institutional investors giving up “right to sue”: The Authority for Advance Rulings concluded that the settlement amount received by foreign institutional investors (that had invested in the Indian company's shares (American depository receipts)) for giving up the “right to sue” the Indian company was a capital receipt. As such, this amount was not taxable as “income” because it did not replace any business income. The case is: Aberdeen Claims Administration Inc. Read a January 2016 report [PDF 350 KB]
  • Consolidated guidelines, compliance for overseas assignments: India has signed several social security agreements with other countries with a view to obtaining an exemption from contributions towards social security in the host countries for outbound employees, provided that there are contributions made to social security in India. To obtain this exemption, an outbound employee must have a “certificate of coverage” from the designated agency, the Employees’ Provident Fund Organisation (EPFO), which serves as a proof of social security contribution in India. Read a January 2016 report [PDF 294 KB]

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