Transcript [INSERT TITLE OF THE PRESENTATION]

Royalties
Avinash Gupta
LLM (Vienna), ACA, B. Com. H (SRCC)
Nitin Bansal
LLB, ACA, B. Com.H
CONCEPT
 What is “International Taxation”?
 Which income is to be taxed and where?
 Categories of International Tax




Cross Border Trade in Goods and Services
Cross Border Manufacturing by MNCs
Cross Border Investments
Taxation of Individuals working outside country
 System of Taxation
 Territorial System (For e.g. France, Singapore, Hong Kong, Panama)
 Global Tax System or Worldwide Tax System (like India, UK)
 Citizen Based Taxation (only in USA)
Acclaim Management Solutions Private Limited
International Taxation
CONCEPT
 Source Vs Residence Rule
 Need for Double Tax Relief
 Bi-lateral Relief – DTAA
 Unilateral Relief
 Tax Residency Certificate Vs Incorporation Certificate
 Tax Heavens
 Need for Transfer Pricing
Acclaim Management Solutions Private Limited
International Taxation
Section 195 – Overview applicability
Section
Provisions
195(1)
Scope and conditions for applicability
195(2)
Application by the ‘Payer’ for determining sum chargeable
195(3)
Application by the ‘Payee’ for lower or Nil withholding
195(4)
Validity of certificate issued by the AO u/s 195(3)
195(5)
CBDT empowered to make Rules in respect of sec 195(3)
195(6)
CBDT empowered to provide forms in which information to be furnished
195(7)*
CBDT empowered to specify class of persons or cases (where recipient is
NR) who will be mandated to furnish application to AO for determination of
withholding rate
* Introduced by Finance Act, 2012, no notification issued till date
TDS on Non-Resident Payment
under section 195
Section 195(1) – Scope and applicability
– Applicable on any sum (other than salary)
–
All types of payments covered unlike domestic WHT provisions wherein specific
payments are covered
– payable by any person to a non-resident
–
Transactions between Resident to Non-Resident as well as between Non-Resident &
Non-Resident also covered
– which is chargeable to tax in India
–
Provisions of the Act or DTAA, whichever is beneficial shall apply
– Deduction at the time of credit of payment, whichever is earlier
– at rates in force
Determination of ‘Any sums chargeable
to tax’…
• Charge of Income Tax – Section 4
• Scope of Total Income – Section 5
– Accruing or deemed to accrue
– Received or deemed to receive
• Residential Status – Section 6
DTAA and Domestic Law
Nature of Income
Income Tax Act
Treaty/DTAA
Business/Profession
Section 9(1)(i): Concept of
Business Connection
Article 5;7; 14: Concept of PE
or Fixed Base
Salary Income
Section 9(1)(ii)
Article 15
Dividend Income
Section 9(1)(iv) and section 115A
Article 10
Interest Income
Section 9(1)(v) and section 115A
Article 11
Royalties
Section 9(1)(vi) and section 115A
Article 12
FTS
Section 9(1)(vii) and section 115A
Article 12
Capital Gains
Section 9(1)(i) and section 45
Article 13
Provision of Act or DTAA, whichever is beneficial shall apply
Acclaim Management Solutions Private Limited
International Taxation
Model DTAA –
Articles
Articles - Classification
Application
articles
Definition
provision
Anti Avoidance Elimination of Miscellaneous
provisions
double taxation provisions
Article 1 –
Applicability
Article 3 –
General
definition
Article 9 –
Associated
enterprise
Article 2 –
Taxes covered
Article 4 –
Residence
Article 26 –
Exchange of
information
Article 28 –
Diplomats
Article 30 –
Entry into force
Article 5 –
Permanent
Establishment
Article 27 –
Assistance for
collection of tax
Article 25 –
Mutual
agreement
Article 31 –
Termination
Article 23 –
Elimination of
double taxation
Article 24 –
Non
discrimination
Article 29 –
Territorial
extension
CONT.
Distributive articles
Article 6
Income from immovable property
Article 7
Business Profit
Article 8
Shipping, inland waterways transport and air transport
Article 10
Dividends
Article 11
Interest
Article 12
Royalties / Fee for Technical Services
Article 13
Capital Gains
Article 14
Independent personal services
Article 15
Income from employment
Article 16
Director’s Fees
Article 17
Artistes and Sportsmen
Article 18
Pensions
Article 19
Government Service
Article 20
Students
Article 21
Other Income
Article 22
Capital
Furnishing TRC mandatory
requirement
• Furnishing of TRC made mandatory to avail treaty benefits
• Notification 57/2013 dated 1 August 2013 issued by CDBT, which
mandates submission of following information in Form
10F:
– Status (individual, company, etc) of the assessee
– Nationality or country or specified territory of incorporation or registration
– Assessee’s tax identification number in the country or specified territory of
residence and in case there is no such number, then, a unique number on the
basis of which the person is identified by the Government of the country or the
specified territory of which the assessee claims to be a resident;
– Period for which the residential status, as mentioned in the certificate referred to
in sub-section (4) of section 90 or sub-section (4) of section 90A, is applicable;
and
– Address of the assessee in the country or specified territory outside India, during
the period for which the certificate, as mentioned in (iv) above, is applicable.
• Declaration not required, if TRC contains above particulars
Section 206AA Vs DTAA
 Facts of the Case
 Rate as per Income Tax Act is 25.75% (u/s 115A)
 Rate as per DTAA is 10%
 Situations (Rate of Withholding)





Non-resident has TRC and PAN
Non-resident does not have TRC and PAN
Non-resident have TRC but does not have PAN
Non-resident does not have TRC but have PAN
Non-resident have TRC but no PAN and Rate as per DTAA is NIL
Acclaim Management Solutions Private Limited
International Taxation
Provisions
 Section 9 of Income Tax Act, 1961




Business Connection
Interest
Royalty
Fee for Technical Services
 Rates of Tax under Income Tax Act, 1961
 DTAA




Article 7 Business Profits read-with Article 5 of PE
Article 11 Interest
Article 12 Royalties
Article 13 Fee of Technical Services
 Rates as per DTAA
Acclaim Management Solutions Private Limited
International Taxation
Royalty
and
Fee for Technical Services
Acclaim Management Solutions Private Limited
International Taxation
Royalty under Income Tax Act
Payable by
The Government
A resident
A non-resident
Exception/Condition
except where the royalty is payable in respect of any right, property or
information used or services utilised for the purposes of a business or
profession carried on by such person outside India or for the purposes of
making or earning any income from any source outside India
where the royalty is payable in respect of any right, property or
information used or services utilised for the purposes of a business or
profession carried on by such person in India or for the purposes of
making or earning any income from any source in India
Acclaim Management Solutions Private Limited
International Taxation
Case study - Exception
– Such royalty is payable in respect of export
sales through branch by I Co outside India
Customer
F Co
Branch
Sales
I Co
Royalty
outside India
in India
Case study - Exception
– Such royalty is payable by F1 Co (non-resident) to F2
Co (non-resident)
F1 Co
F2 Co
Royalty
outside India
in India
Export Sales
I Co
Royalty: Definition under Domestic Law
“Royalty” means consideration (including any lump sum consideration……) for
– transfer of all or any rights (including the granting of a licence) in respect of a
patent, invention, secret formula or process, …. similar property
– use of any or for imparting information of :
•
patent
•
invention
•
secret formula or process, ……
•
similar property
– transfer of all or any rights (including granting of a licence) in respect of any
copyright, literary, artistic or scientific work
– transfer of all or any rights (including granting of a licence) in respect of films
or video tapes for telecast or radio broadcasting
– use or right to use any industrial, commercial or scientific equipment
– imparting of any information concerning technical, industrial, commercial or
scientific knowledge or skill
Royalty: Domestic Law
►
Does not include:
►
Consideration for sale, distribution or exhibition of cinematographic films
►
Capital gains income from sale, transfer of Intellectual Property Right
(IPR)
Royalty & FTS under DTAA
1. Royalties or fees for technical services arising in a Contracting State and paid to
a resident of the other Contracting State may be taxed in that other State.
2. However, such royalties or fees for technical services may also be taxed in the
Contracting State in which they arise and according to the laws of that State, but
if the beneficial owner of the royalties or fees for technical services is a resident
of the other Contracting State the tax so charged shall not exceed 10 per cent of
the gross amount of the royalties or fees for technical services.
3. (a) The term “royalties” as used in this Article means payments of any kind
received as a consideration for the use of, or the right to use, any copyright of
literary, artistic or scientific work including cinematograph films or films or tapes
used for television or radio broadcasting, any patent, trade mark, design or
model, plan, secret formula or process, or for the use of, or the right to use,
industrial, commercial or scientific equipment, or for information concerning
industrial, commercial or scientific experience.
Acclaim Management Solutions Private Limited
International Taxation
Royalty & FTS under DTAA
3.(b) The term “fees for technical services” as used in this Article means payments
of any kind, other than those mentioned in articles 14 and 15 of this Convention
as consideration for managerial or technical or consultancy services, including
the provision of services of technical or other personnel.
4. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the
royalties or fees for technical services being a resident of a Contracting State,
carries on business in the other Contracting State in which the royalties or fees
for technical services arise, through a permanent establishment situated therein,
or performs in that other State independent personal services from a fixed base
situated therein, and the right or property in respect of which the royalties or fees
for technical services are paid is effectively connected with such permanent
establishment or fixed base. In such case the provisions of article 7 or article 14,
as the case may be, shall apply.
Acclaim Management Solutions Private Limited
International Taxation
Questions ???
Let’s Discuss
Acclaim Management Solutions
Private Limited
A – 2/ 89,
Safdurjung Enclave
Avinash Gupta:
New Delhi: 110 029
+91 98107 51999
Ph: +91 11 4134 5046
W: www.acclaimindia.com
[email protected]
[email protected]