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India: Permanent establishment, loan-related fees under income tax treaties

India: Permanent establishment, loan-related fees

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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  • Payments for content delivery solutions do not create permanent establishment: The Authority for Advance Rulings (AAR) found that payments received by the taxpayer from an Indian company under the “services reseller agreement” for content delivery solutions for accelerating content and business processes online were not in the nature of “fees for technical services” or royalties under the Income-tax Act, 1961 or under provisions of the India-United States income tax treaty. Therefore, the transaction did not give rise to a permanent establishment in India. The case is: Akamai Technologies Inc. Read a May 2018 report [PDF 692 KB]

  • Loan-related fees paid to non-resident under India-France income tax treaty: The AAR found that a “front-end fee" received for the appraisal of a loan application is not taxable as interest under the India-France income tax treaty. However, the front-end fee (other than appraisal fee), commitment fee, cancellation fee, monitoring fee, and amendment fee were taxable as interest under the tax treaty. The case is: Societe De Promotion Et De Participation Pour La Cooperation Economique. Read a May 2018 report [PDF 581 KB]

  • Marketing business process outsourcing services not taxable as fees for technical services: The Kolkata Bench of the Income-tax Appellate Tribunal held that payments to a foreign company for marketing a taxpayer’s business process outsourcing services in foreign countries were not taxable in India because the foreign marketing companies were engaged only for promoting and marketing of the taxpayer’s business process outsourcing service in the United States. The case is: Onprocess Technology India Pvt Ltd. Read a May 2018 report [PDF 438 KB]

  • Discounted cash flow method, tax treatment of share transfers: The Delhi Bench of the Income-tax Appellate Tribunal addressed the method of valuation to determine value of shares transferred and the tax treatment of the transfer taxability under section 56(2)(viib) of the Income-tax Act, 1961. The case is: Agro Portfolio Pvt Ltd. Read a May 2018 report [PDF 454 KB]

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