Taxation of cross-border services / Radhakishan Rawal.
2014
K4475 .R395 2014 (Map It)
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Details
Author
Title
Taxation of cross-border services / Radhakishan Rawal.
Published
Alphen aan den Rijn, The Netherlands : Kluwer Law International, [2014]
Copyright
©2014
Call Number
K4475 .R395 2014
ISBN
9789041149473 (hardcover)
9041149473 (hardcover)
9041149473 (hardcover)
Description
xxviii, 443 pages : illustrations ; 25 cm.
System Control No.
(OCoLC)894937046
Bibliography, etc. Note
Includes bibliographical references.
Record Appears in
Table of Contents
About the Author
v
Foreword
xxv
Preface
xxvii
ch. 1
General Overview of Taxation of Cross-Border Services
1
1.
Cross-Border Services
1
2.
Taxation of Cross-Border Services under the Domestic Law
1
3.
Taxation of Cross-Border Services under the Tax Treaties
2
3.1.
Various Articles of the Tax Treaties Dealing with Services
2
3.1.1.
Shipping and Air Transport Services (Article 8)
2
3.1.2.
Professional Services and Other Independent Activities (Article 14)
3
3.1.3.
Income from Employment (Article 15)
3
3.1.4.
Director's Fees (Article 16)
3
3.1.5.
Services of Artistes and Sportsmen (Article 17)
3
3.1.6.
Pensions (Article 18)
4
3.1.7.
Government Services (Article 19)
4
3.1.8.
Students (Article 20)
4
3.1.9.
General Provisions
5
3.1.9.1.
Taxation of Services Income as 'Business Income' under Article 7
5
3.1.9.2.
Taxation of Services Income as 'Other Income' under Article 21
5
3.1.10.
Specific Article Dealing with Fees for Technical Services
5
3.2.
Influence on the Model Conventions
7
Appendix A List of Cross-Border Services
8
ch. 2
FTS Article - Part I
11
1.
Paragraph 1 of Article 12
12
1.1.
Income 'Arising' in a Contracting State
13
1.2.
Implications of Income 'Deemed to Arise' in a Contracting State
13
1.3.
Implications of Income Not Falling within Paragraph 1 of Article 12
14
1.4.
'Paid to a Resident'
14
1.5.
'May be Taxed'
15
1.6.
Variations of Paragraph 1 of Article 12
15
1.6.1.
Derived By
15
1.6.2.
Technical Fees
16
1.6.3.
Payment for Use of Equipment
16
1.6.4.
Fees for Included Services
16
1.6.5.
Combination of Paragraphs 1 and 2
16
1.6.6.
'Subject to Tax' Requirement
17
1.6.7.
Requirement of 'Beneficial Ownership' for Taxation in the State of Residence
17
1.6.8.
Taxation in the Country of Residence
17
1.6.9.
Payment to an 'Enterprise'
18
1.6.10.
Miscellaneous
18
2.
Paragraph 2 of Article 12
18
2.1.
Scope of Fees Covered under Paragraph 2: 'Such Fees for Technical Services'
18
2.2.
Implications of Income 'Deemed to Arise' in a Contracting State
19
2.3.
Taxation 'in Accordance with the Law of the Source State'
20
2.4.
Beneficial Ownership
21
2.5.
Implications Where the Recipient and the Beneficial Owner Are Different Persons
22
2.5.1.
Implications for the State of Residence
22
2.5.2.
Implications for the State of Source
24
2.6.
Maximum Tax in the State of Source
26
2.7.
Implications of Surcharge under the Domestic Law
26
2.8.
Variations of Paragraph 2 of Article 12
27
2.8.1.
Beneficial Ownership
27
2.8.2.
Cap on Taxation by the State of Source
27
2.8.3.
'Recipient as Beneficial Owner' versus 'Beneficial Owner Is Resident'
28
2.8.4.
Reference to Competent Authority
28
2.8.5.
Limitations of Benefit (LOB)
28
2.8.6.
Miscellaneous
28
3.
Definition of 'Fees for Technical Services' (Paragraphs 3 and 4 of Article 12)
29
3.1.
Exclusion for Payments to Employees
29
3.2.
Exclusion for Services of Independent Personal Services
30
3.3.
Issues Arising from the Definition in Tax Treaties
30
3.4.
Variations of Paragraph 3/4 of Article 12
30
3.4.1.
Managerial, Technical and Consultancy Services
31
3.4.2.
Administrative Services, Scientific Services, Management Fees, Technical Fees
31
3.4.3.
Management and Professional Fees
31
3.4.4.
Provision of Services of Technical or Other Personnel
32
3.4.5.
Payment of Any 'Kind' versus Payment of Any 'Amount'
32
3.4.6.
Reference to 'Lump Sum Consideration'
32
3.4.7.
Exclusion for Certain Projects/After Sales Services
32
3.4.8.
Exclusion for Payments to Employees
33
3.4.9.
Exclusion for Services of Independent Personal Services
34
3.4.10.
Exclusion for Services Resulting in Service PE or Construction PE
34
3.4.11.
Exclusion from 'Business Profits'
35
3.4.12.
Reference to Place of Provision of Services
36
3.4.13.
Miscellaneous
36
3.4.14.
Other Exclusions
37
3.4.15.
Tabular Summary
37
4.
Paragraph 4 of Article 12 (Permanent Establishment/Fixed Base Situation)
42
4.1.
Circular Reference between Paragraph 7 of Article 7 and Paragraph 4 of Article 12
43
4.1.1.
Desired Positions
43
4.1.2.
Rationale
44
4.1.3.
Judicial Precedent
44
4.1.4.
Indian Tax Treaties with Tanzania and Zambia
45
4.2.
Implication of Exclusion of Paragraph 1 of Article 12
45
4.3.
Overlap between Article 14 and Article 12
47
4.4.
Rendition of Services for Period Exceeding Prescribed Threshold
49
4.5.
Professional Fees Paid by a Person Resident in the Source State
50
4.6.
Beneficial Owner versus Resident
50
4.7.
Effectively Connected
52
4.8.
Fees for Technical Services in Respect of Right or Property
52
4.9.
Variations of Paragraph 4 of Article 12
54
4.9.1.
Recipient versus Beneficial owner
55
4.9.2.
In Respect of Right, Property, Contract or Service
55
4.9.3.
Effectively Connected versus Attributable To
55
4.9.4.
Reference to 'Fixed Base'
56
4.9.5.
Absence of Exclusion of Paragraph 1 of Article 12
56
4.9.6.
Paid or Credited
56
4.9.7.
Taxation as per the Domestic Law of the Source State as against as per Article 7
56
5.
Paragraph 5 of Article 12 (Deemed Accrual)
57
5.1.
Deemed to Arise: Absence of Linkage with Paragraph 2
57
5.2.
Fees Paid by a Resident of a Contracting State
57
5.3.
Fees Paid in Relation to a Permanent Establishment in a Contracting State
57
5.4.
Fees Paid by a Person Who Is Resident of None of the Contracting States
59
5.5.
Rationale for the Deeming Provision
60
5.6.
Absence of Complete Linkage to Independent Personal Services
60
5.6.1.
Rendition of Professional Services for Period Exceeding the Threshold
61
5.6.2.
Absence of Reference to Fixed Base
61
5.7.
Implications of 'Where, However'
62
5.8.
Reference to Contracting State
64
5.9.
Fees Incurred in Connection with the Permanent Establishment
66
5.10.
Borne By
70
5.10.1.
Borne by as 'Financial Burden'
71
5.10.2.
Borne by as 'Deductible'
71
5.10.3.
Rationale for the 'Borne By' Condition
72
5.10.4.
Guidance from OECD Commentary
73
5.10.5.
Judicial Precedents
74
5.10.6.
Comparison with the Domestic Law
79
5.11.
Place of Performance of Services and the Place of Deemed Accrual
79
5.11.1.
Provision of India-Finland Tax Treaty
79
5.11.2.
Provision of Tax Treaties Signed with Iceland, Luxembourg and USA
82
5.11.3.
Meaning of 'One of the Contracting States'
84
5.12.
Comparison with the Deeming Provisions of the Indian Domestic Law
90
5.12.1.
Fees Paid by a Resident Not Deemed to Arise in India
90
5.12.2.
Fees Paid by a Non-resident Deemed to Arise in India
94
5.13.
Variations of Paragraph 5 of Article 12
96
5.13.1.
Contracting State, Political Sub-division or a Local Authority as a Payer
96
5.13.2.
Statutory Body, Land or Administrative Territorial Unit as a Payer
97
5.13.3.
Permanent Establishment outside Both the Contracting States
97
5.13.4.
Reference to 'Fixed Base' Absent
97
5.13.5.
Place of Performance of Services: Place of Accrual
98
5.13.6.
Conclusion of Contract with the Permanent Establishment
98
5.13.7.
Contract Effectively Connected with the Permanent Establishment
98
5.13.8.
Miscellaneous
99
6.
Paragraph 6 of Article 12
99
6.1.
Applicability of Arm's Length Principle
99
6.2.
Rationale of the Provision
100
6.3.
Special Relationship
100
6.4.
Payment Less than Arm's Length
101
6.5.
Reclassification of Payment
101
6.6.
Treatment of Payment Exceeding Arm's Length Payment
102
6.7.
Beneficial Owner versus Recipient
102
6.8.
Variations of Paragraph 6 of Article 12
103
6.8.1.
'Beneficial Owner' versus 'Recipient'
103
6.8.2.
'For Whatever Reasons'
103
6.8.3.
'Having Regard To...'
103
6.8.4.
Missing Reference to Other Provisions of the Tax Treaties
103
6.8.5.
Miscellaneous
103
ch. 3
FTS Article - Part II
105
1.
Taxability of Fees on Accrual Basis
105
2.
Payment by a Resident of a Contracting State
107
3.
Place of Rendition of Services
108
3.1.
Requirement of Rendition of Services in a Contracting State as per Definition of FTS
109
3.2.
Requirement of Rendition of Services in a Contracting State as per the Deeming Accrual Provision
112
4.
Consultancy Services: Technical versus Non-technical
113
5.
Accounting Treatment and Characterization of Income
113
6.
Treatment of Lump Sum Payments
114
7.
Terminology Used by the Parties and Characterization of Income
114
8.
Implications of Characterization Adopted by the Other Contracting State
115
9.
Characterization of Certain Specific Items of Income
116
9.1.
Credit Rating Services
116
9.2.
Procurement Charges for Goods
118
9.3.
Inspection Fees
119
9.4.
Consideration for Transfer of Documents and Designs
119
9.5.
ISO Certification
119
10.
Services Linked to Purchase of Machinery
119
11.
Reliance on Other Tax Treaties for the Purpose of Interpretation
120
12.
Article 12 versus Article 7
121
13.
Special Provision versus General Provision
122
14.
Taxation of Income from Certain Businesses
122
15.
Adoption of Domestic Law Definition in Tax Treaties
125
15.1.
Term Is Not Defined in the Tax Treaty
126
15.2.
Term Is Defined in the Tax Treaty
126
15.3.
Argument Based on Section 90
126
15.4.
Judicial Precedents
127
16.
Adoption of Tax Treaty Definition in the Domestic Law
127
16.1.
Argument Based on Section 90
127
16.2.
Judicial Precedents
128
17.
Applicability of Other Source Article to Fees for Technical Services
128
18.
Implications of Absence of Article Dealing with 'Fees for Technical Services'
128
19.
Implications of Two Specific Articles Dealing with 'Fees for Technical Services'
129
ch. 4
Make Available
131
1.
Make Available Provision
131
2.
Absence of Term 'Managerial Services'
132
3.
Consideration for Incidental Services
134
3.1.
Ancillary and Subsidiary
135
3.2.
Should the Recipient of 'Royalties' and 'Fees for Technical Services' Be the Same Person?
135
3.3.
Can a Payment under Separate Agreement Be Said to Be Ancillary?
136
3.4.
Can There Be a Significant Time Gap between the Payment of 'Royalties' and 'Fees for Technical Services'?
136
3.5.
Guidance from Memorandum of Understanding
136
3.6.
Comparable Provision in the Domestic Law?
138
3.7.
Judicial Precedents
138
4.
Make Available Condition
141
4.1.
Guidance from the Memorandum of Understanding
142
4.2.
Meaning of the Term 'Experience'
143
4.3.
Judicial Precedents on 'Make Available'
143
4.3.1.
Make Available Condition Not Satisfied
143
4.3.2.
Make Available Condition Satisfied
145
4.3.3.
Interpretation Based on Distinction from Article 12(3) (a)
146
4.3.4.
Consideration for Software
147
4.3.5.
Evidence for Make Available
148
4.3.6.
Does 'Support Service' Necessary Make Available Technical Knowledge?
149
4.3.7.
Can Technology Be Made Available for Specified Period?
151
4.3.8.
Technology to Be Returned: Termination Clause of the Agreements
151
5.
Development and Transfer of Technical Plan or Design
152
5.1.
Whether 'Business Strategy' Qualifies as Technical Plan?
153
5.2.
Whether 'Make Available' Condition Necessary to Satisfy?
153
5.3.
Make Available Condition Automatically Met?
153
5.4.
Specific Provision Requiring Application of Technology
154
5.5.
Absolute Transfer Necessary?
154
5.6.
Incidental Satisfaction of the Requirements of the Article
154
5.7.
Adoption/Acceptance of Technology by the Person Availing Services Necessary for Applicability of the Article?
155
5.8.
Make Available: To Whom?
156
5.9.
Transfer of Design: Domestic Law More Beneficial?
156
5.10.
Judicial Precedents
156
6.
Stewardship/Shareholders Activities
157
7.
Exclusions from the Fees for Included/Technical Services
158
7.1.
Payments Linked to Sale of Property
158
7.2.
Consideration for Services Incidental to International Traffic
159
7.3.
Consideration for Teaching
159
7.4.
Services for Personal Use of the Individuals
161
7.5.
Consideration for Salaries and Professional Fees
162
8.
Overlap Provisions
162
8.1.
Overlap between Article 12(3)(a) and Article 12(4)(b)
162
8.2.
Overlap between Article 12(4)(a) and Article 12(4)(b)
162
9.
Interpretation of Other Tax Treaties Based on the MOU
162
10.
Variation of 'Make Available' Provision
163
10.1.
Services of Technical or Other Personnel
163
10.2.
Application of Technology Contained in Skill, Know-Processes, Etc
163
10.3.
Application of Technology Contained in Technical Plan or Technical Design
164
10.4.
Managerial Services
164
10.5.
Absence of Exclusions
164
10.6.
Exclusion for 'Private Use' of Services by Individuals
164
10.7.
Exclusion of Services in Connection with Exploration of Natural Resources
164
10.8.
Exclusion for Services Linked to Construction, Installation Project
164
10.9.
Terminology
165
10.10.
Miscellaneous
165
Appendix A Memorandum of Understanding to India-USA Tax Treaty
166
ch. 5
Effectively Connected Fees for Technical Services
173
1.
Rationale for Linking the Articles
173
2.
Does Article 7 or Article 14 Result in Higher Tax Liability?
174
3.
Provisions Dealing with 'Effectively Connected'
175
4.
Meaning of 'Effectively Connected With'
177
5.
Examples Based on Guidance from the Commentary
179
5.1.
Examples as Regards Dividend Income
180
5.1.1.
What Is 'Forming Part of the Assets'?
180
5.1.2.
What Is 'Otherwise Effectively Connected'?
181
5.2.
Examples as Regards Interest Income
182
5.2.1.
Debt Claim Forming Part of the Assets
183
5.2.2.
Otherwise Effectively Connected
186
6.
Examples For Fees For Technical Services/Contract/Services Effectively Connected with the Permanent Establishment/Fixed Base
187
7.
Payment by Permanent Establishment: Effective Connected?
191
8.
Criteria for 'Effectively Connected'
192
9.
Guidance from Tax Treaties Signed by Countries
193
10.
'Effectively Connected With' versus 'Attributable To'
194
10.1.
Are These Different Concepts?
194
10.2.
Implications of Difference between 'Effectively Connected With' and 'Attributable To'
196
10.3.
Conclusion
197
10.4.
Implications of the Words 'Attributable to' in the US Model
199
11.
Interplay between 'Force of Attraction Rule' and 'Effectively Connected With'
200
12.
Special Feature of UN Model
201
13.
Variations of Scope of 'Effectively Connected' in the UN Model
202
ch. 6
Article 12 versus Article 14
205
1.
Overlap between Article 12 and Article 14
205
2.
Provisions for Avoiding Overlap
206
2.1.
Variation 1 - Reference to 'Services' Mentioned in Article 14
206
2.2.
Variation 2 - Reference to 'Payments' Mentioned in Article 14
207
2.3.
Other Specific Variations for Avoiding Overlap
208
3.
Absence of Provisions for Avoiding Overlap
209
4.
Scope of Article 14 as a Special Provision
212
4.1.
Analysis
214
4.1.1.
Reliance on UN Commentary
214
4.2.2.
Reliance on the OECD Commentary
215
4.2.3.
Heading of the Article
215
4.2.4.
Judicial Precedents
216
4.2.
Conclusion
218
5.
Specific Recognition of the Legal Status of Person Rendering Services
218
5.1.
Specific Reference in Article 12
218
5.2.
Specific Reference in Article 14
218
6.
Can Fees for Services Escape Article 12 as Well as 14?
219
7.
Implications of Fixed Base
221
7.1.
Fixed Base
221
7.2.
Fixed Base in Paragraph 4 of Article 12
221
7.2.1.
Variation 1 - Specific Exclusion in Paragraph 3 of Article 12
222
7.2.2.
Variation 2 - No Specific Exclusion in Paragraph 3 of Article 12
222
7.3.
Why Is a Reference to Fixed Base in Paragraph 4 of Article 12 Required?
223
7.3.1.
Variation 1 - Specific Exclusion in Paragraph 3 of Article 12
223
7.3.2.
Variation 2 - No Specific Exclusion in Paragraph 3 of Article 12
223
7.4.
Alternative Interpretation
224
7.4.1.
Broad Scheme of the Tax Treaty: Full Taxing Rights to the Source Country
224
7.4.2.
Analysis - Alternative Interpretation
225
7.5.
Applicability of Article 14 to Income Other than Consideration for 'Independent Personal Services'
226
Appendix A Article 14
228
ch. 7
Applicability of Other Source Article to the Fees for Technical Services
231
1.
Article 21 under the Models and Tax Treaties
232
2.
Provisions of Article 21
233
2.1.
Items of Income
233
2.2.
Class of Income
234
2.3.
Source of Income
234
2.4.
Meaning of 'Dealt With', 'Expressly Dealt With', 'Expressly Mentioned'
235
2.4.1.
Dealt With
235
2.4.2.
Expressly Dealt With
235
2.4.3.
'Expressly Mentioned'
236
3.
What Are the Items of Income Not Dealt With in Other Articles?
236
3.1.
Class of Income Not Specifically Dealt by Any Article
236
3.2.
Where the Definition of Class of Income Is Not Satisfied
236
3.3.
Where the Income Arises in a Third Contracting State
238
3.4.
Where the Income Arises and Is Paid to a Resident of the Same Contracting State
238
4.
Applicability of Article 7 or Article 21
238
4.1.
Scenario 1 - Absence of Specific Article
239
4.2.
Scenario 2 - Non-applicability of Specific Article
240
4.3.
Indications in Paragraph 2 of Article 21 and the OECD Commentary
240
4.4.
Conclusion
241
Appendix A Relevant Extracts of OECD Commentary Using the Word 'Class'
243
ch. 8
Service PE - Part I
245
1.
Definition of Service PE
246
2.
Existence of 'Service Provider' and 'Recipient of Services'
247
3.
Can a Person Acquiring Services Be Said to Have Service PE?
247
4.
Rationale of Service PE Clause
249
5.
'Other Personnel'
249
5.1.
Other Personnel: Whether It Includes Non-individuals?
250
5.2.
Use of the Term 'Personnel' in the Domestic Law
250
5.3.
Dictionary Meaning of the Term 'Personnel'
251
5.4.
Use of the Term 'Personnel' in Tax Treaties
251
5.5.
Use of the Term 'Personnel' in the Commentary
251
5.6.
Conclusion: 'Personnel' as an Individual
252
5.7.
Comparison with the Proposed Service PE Clause in the OECD Commentary
252
5.8.
Other Personnel: Whether It Includes Employees of a Non-individual Contractor?
253
5.9.
Should the 'Personnel' Not Be Resident of the Host Country?
254
6.
Benefit of Exception Contained in Article 5(7)
256
6.1.
Effect of Deeming Fiction
256
6.2.
Rendering Services versus Carrying on Business
257
6.3.
Can an Independent Agent Render Services on Behalf of an Enterprise?
257
6.4.
Domestic Law Meaning of the Term 'Agent'
258
6.5.
Conclusion
259
6.6.
Comparison with the Proposed Service PE Clause in the OECD Commentary
260
7.
Should 'Other Personnel' Be Dependent on the Enterprise?
260
8.
Overlap between Service PE and Agency PE?
262
9.
Benefit of Exceptions Contained in Article 5(4)
263
10.
Meaning of 'Furnishing Services Within'
264
10.1.
Difference between 'Services Rendered within a Country' and 'Services Rendered in a Country'
264
10.2.
Presence of Person Availing Services
265
10.3.
Absence of Person Availing Services in the Country: Direct Utilization/Consumption of Services
266
10.4.
Absence of Person Availing Services in the Country - Indirect Utilization of Services
267
10.5.
Utilization of Services in Another Country
269
10.6.
Provision of Services to the Head office
270
10.7.
Furnishing Services versus Rendering Services
272
Appendix A Relevant Extracts of the UN Commentary on Article 5(3)
273
Appendix B Use of Term 'Personnel' in Tax Treaties
277
ch. 9
Service PE - Part II
279
1.
Six Months within Any Twelve Months Period
279
1.1.
Month as a Calendar Month
279
1.2.
Month as a Period of 30 Days
280
1.3.
'Month' as per the Domestic Law
280
1.4.
Should the Term 'Month' Be Interpreted Differently for 12 Months Calculation?
281
1.5.
Should the Services Be Rendered for a Continuous Period of Six Months?
282
1.6.
Man Days versus Solar Days
282
1.7.
Treatment of Temporary Gaps
283
1.8.
Service Period Falling in Two Financial Years
284
1.9.
Comparison with the Suggested Service PE Clause in the OECD Commentary
284
2.
Same or Connected Project
285
3.
Service PE and Requirements of Article 5(1)
285
4.
Service PE Article as a 'Special Provision'
287
5.
Provision of Services versus Lending/Deputation of Employees
288
6.
One Day PE
289
7.
Service PE versus 'Fees for Technical Services'
289
7.1.
Exclusion in Service PE Clause
289
7.1.1.
Is It Appropriate to Switch between Articles 5/7 and 13?
292
7.1.2.
Specific Exclusion from the Article Dealing with Technical Fees
292
7.2.
Implications of Non-exclusion
295
7.3.
Interplay between Service PE and Article 13(5)
296
7.4.
Restricted Article for 'Technical Fees'
299
8.
Service PE in Terms of the Provisions of the Domestic Law
300
9.
Rendition of Services to Associated Enterprises
300
10.
Implications of Fulfilment of Service PE Clause
302
11.
Proof of Service PE Creation
302
12.
Variations of Service PE Clause
302
12.1.
Tax Treaties Signed by India
303
12.1.1.
Placement of Service PE Clause in Article 5
303
12.1.2.
Inclusion versus Deeming Fiction
303
12.1.3.
Number of Months/Days
303
12.1.4.
Reduced Period for Services Rendered to an Associate Enterprise
304
12.1.5.
Nature of Services - Inclusion
305
12.1.6.
Nature of Services - Exclusion
305
12.1.7.
Furnishing Services 'within a Contracting State'
306
12.1.8.
Same or a Connected Project
306
12.2.
Tax Treaties Signed by UK
306
12.2.1.
Placement of Service PE Clause in Article 5
306
12.2.2.
Inclusion versus Deeming Fiction
307
12.2.3.
Number of Months/Days
307
12.2.4.
Reduced Period for Services Rendered to an Associate Enterprise
308
12.2.5.
Nature of Services - Inclusion
308
12.2.6.
Nature of Services - Exclusion
309
12.2.7.
Same or a Connected Project
309
12.2.8.
Period or Periods Aggregating
309
12.2.9.
Employees or Other Personnel
309
12.3.
Tax Treaties Signed by USA
310
12.3.1.
Exemption for Activities for a Period Lesser than 30 Days in a Year
310
12.3.2.
One Day PE
310
12.4.
DTAAs Signed by Netherlands
310
12.5.
Tax Treaties Signed by France
310
12.6.
Tax Treaties Signed by China
311
12.6.1.
Placement of Service PE Clause in Article 5
311
12.6.2.
Inclusion versus Deeming Fiction
311
12.6.3.
Number of Months/Days
311
12.6.4.
Reduced Period for Services Rendered to an Associate Enterprise
311
12.6.5.
Nature of Services - Inclusion
311
12.6.6.
Nature of Services - Exclusion
312
12.6.7.
Furnishing Services 'within a Contracting State'
312
12.6.8.
Same or a Connected Project
312
12.6.9.
Engaged Personnel
312
12.6.10.
Miscellaneous
313
Appendix A Decisions on Meaning of the Term 'Month'
314
Appendix B Decisions on Applicability of Requirements of Article 5(1) to Service PE
317
Appendix C Decisions on Rendering Services versus Lending Employees
320
ch. 10
OECD Service PE Provision
325
1.
OECD Approach on Taxation of Services
325
2.
New OECD Approach on Taxation of Services
325
3.
Difficulties in Taxation of Services without Permanent Establishment, i.e Fixed Place
326
4.
Basic Purpose/Intention of the Service PE Provision
326
5.
Broad Principles for Service PE Provision
326
6.
Suggested Service PE Clause
327
7.
Placement of Service PE Clause
327
7.1.
Placement between Paragraph 3 and Paragraph 4
327
7.2.
Placement between Paragraph 4 and Paragraph 5
328
7.3.
Placement between Paragraph 5 and Paragraph 6
328
7.4.
Placement between Paragraph 6 and Paragraph 7
328
7.5.
Placement under the UN Model
328
8.
Implications of the OECD Commentary on Current and Future Tax Treaties
328
8.1.
Tax Treaties Based on UN Model
328
8.2.
Tax Treaties Based on OECD Model without Service PE Provision
329
9.
Interplay between the Proposed Service PE Provision and Paragraph 1 and Paragraph 2 of Article 5
329
10.
Interplay between the Proposed Service PE Provision and Paragraph 3 of Article 5
330
11.
Should Not the Special Provision Override General Provision?
330
12.
Type of Activity, Place of Performance and Person Availing Benefit
331
13.
Person Rendering Services
332
14.
One Man Enterprise: Clause (A) of Service PE Provision
332
14.1.
Presence in Other Contracting State
332
14.2.
Should 183 Days Be Continuous?
333
14.3.
How Is Duration of 183 Days to Be Calculated?
333
14.4.
Any 12 Months Period
334
14.5.
Gross Revenue Related Requirements
334
14.6.
Rationale of the Provision
334
14.7.
Income from Active Business Activities versus Passive Activities
334
14.8.
Revenue for the Relevant Period as against Revenue of the Entire Year: Practical Difficulty
335
14.9.
Gross Revenue Presumption in the Case of Self-Employed?
336
15.
Clause (B) of the Service PE Provision
336
15.1.
Rendition of Services through One or More Individuals
337
15.2.
Same or Connected Projects
337
15.3.
How Is Period of 183 Days Calculated?
337
15.4.
Abuse of 183 Days Threshold
338
16.
Exclusion for Auxiliary and Ancillary Services
338
17.
Deeming Fiction
340
18.
Services Provided through Employees of Other Enterprise
341
18.1.
Rationale of the Provision
341
18.2.
Contractual Obligations
342
18.3.
Are Both the Entities Treated as Rendering Services?
342
18.4.
Can the Employees of on Enterprise Be Dependent on Another Enterprise?
342
19.
Is It Necessary to Examine Applicability of Both Clause (A) and Clause (B)?
343
20.
Comparison and Interplay between Clause (A) and Clause (B)
343
21.
Interplay between Agency PE and Proposed Service PE Clause
344
22.
Interplay between the Proposed Service PE Provision and Paragraph 6 of Article 5
344
23.
Comparison with UN Model Provision
344
24.
Improvement over UN Model
345
ch. 11
Paragraph 2 of Article 3
347
1.
Basic Provision
347
1.1.
Meaning of 'Therein'
347
1.2.
Scope of 'Law of the Contracting State'
348
2.
Rationale of the Provision
348
3.
Meaning of 'Law'
349
4.
What Is Law Concerning Taxes in India?
350
4.1.
Meanings Given under Rules, Circulars, Notifications, Instructions
351
4.2.
Specific Powers to Define the Terms
351
4.3.
Definitions Adopted from Other Laws
351
4.4.
Definitions under the General Law
351
4.5.
General Meaning Given to Certain Words on the Basis of Other Statutes
352
4.6.
Implications of Court Rulings
353
4.7.
Provisions of the Tax Treaties
353
4.8.
Conclusion
353
5.
Implications of Changes in the Domestic Law
354
5.1.
Static Approach
354
5.2.
Ambulatory Approach -
354
6.
Amendment to Model Convention and OECD Commentary: Build in Ambulatory Approach
355
7.
Paragraph 2 of Article 3 under the Model Conventions
355
8.
Variations of Paragraph 2 of Article 3
355
8.1.
Term Defined 'Herein'
355
8.2.
Term 'Not Otherwise Defined'
356
8.3.
Reference to Competent Authority
356
9.
Implications of Inadequate Definition in Article 3
357
Appendix A OECD Commentary 2010 on Paragraph 2 of Article 3
359
Appendix B Para 2 of Article 3 in Various Models
360
ch. 12
United Nation's Work on Taxation Services
361
1.
Provisions Relevant for Taxation of Services under the UN Model
361
2.
United Nation's Work on Taxation Services
362
Appendix A Recommendations as per E/C.18/2010/CRP.7 Dated 10 October 2010
363
Appendix B Note on the Taxation of Fees for Technical and Other Services under the United Nations Model Convention (27 May 2012)
366
Appendix C Note on Taxation of Services under the United Nations Model Convention
376
Appendix D Follow-Up Note on the Taxation of Fees for Technical and Other Services under the United Nations (Draft 28 August 2012)
394
ch. 13
Taxation under the Indian Domestic Law
407
1.
Taxation under the Indian Domestic Law
407
2.
Main Charging Provisions
407
2.1.
Accruing
408
2.2.
Arising
408
2.3.
Reluctance of the Judiciary
409
2.4.
Reliance on Deeming Provisions
409
2.5.
Relevance for Tax Treaties
409
3.
Provisions for Certain Specific Types of Services: Presumptive Basis
409
4.
Deeming Provisions: Specific Provisions for 'Fees for Technical Services'
410
4.1.
Scope of Section 9(1) (vii)
410
4.2.
Source of Income
411
4.2.1.
What Is a Source of Income?
412
4.2.2.
Different Sources for the Same Income
413
4.3.
Place of Rendition of Services
414
4.3.1.
Extra Territorial Provisions: Position in India
414
4.3.2.
Decisions on Extra Territorial Provisions
415
4.4.
Place of Utilization of Services
419
4.4.1.
Manners of Rendition of Services
420
4.4.2.
Place Where the Services Are Immediately Implemented/Rendered as a Place of Utilization of Services (Immediate Location)
420
4.4.3.
Ultimate Beneficiary Location as a Place of Utilization of Services (Ultimate Location)
421
4.4.4.
Analysis: Determination of Place of Utilization Services
422
4.4.5.
Should Services Necessarily Be Utilized in a Particular Country?
422
4.5.
Should Services Necessarily Be Utilized in Respect of Core Functions of the Business?
423
4.6.
When Business Can Be Said To Be Carried on outside India?
424
4.6.1.
Judicial Precedents
425
4.7.
Implication of Time Gap between Rendition of Services and Its Utilization
428
4.7.1.
Services Rendered Prior to Commencement of Business
428
4.7.2.
Used versus Utilized
429
4.8.
Absence of the Words 'Such Person'
431
4.8.1.
Intention as Expressed in CBDT Circular
432
4.8.2.
Intention as Expressed in the Memorandum
433
4.8.3.
Judicial Precedent
433
5.
Definition of 'Fees for Technical Services'
435
6.
Taxation on FTS: Gross Basis or Net Basis
436
6.1.
Net Basis of Taxation
436
6.2.
Gross Basis of Taxation
437
7.
General
437
Appendix A Relevant Provisions of the Indian Domestic Law
438
Appendix B Issues Related to Definition of 'Permanent Establishment'
440