Facts
Shell India Marketing Private Ltd („Applicant‟) is an Indian company having a network of retail fuel stations in India.
Shell International Petroleum Company Ltd. (Shell UK) is a Shell Group Company incorporated in UK and is engaged in the business of providing consultancy services to various Shell operating companies globally.
The Applicant entered into Cost Contribution Agreement (CCA) with Shell UK for the provision of Business Support Services (BSS) such as general finance advice, taxation advice, legal advice, advice on information technology etc.
On an application to the AAR for determining the taxability of the amount payable for such services the Applicant contended that:
– services are provided at cost and reimbursed by Shell Group entities and accordingly, no income arises to Shell UK under the present arrangement.
– rendering of business support services of advisory nature would not „make available‟ any technical knowledge, skill, experience, etc. to enable it to apply the technology contained therein and therefore, the same is not in the nature of fees for technical services within the meaning of Article 13.4 of the Agreement for Avoidance of Double Taxation between India and United Kingdom („India-UK DTAA‟).
– while contributing to the CCA, it became the economic owner of the know-how resulting from the services provided to it and therefore, the payment would not constitute royalty under section 9(1) of the Income-tax Act, 1961 (Act) or under Article 13 of the India-UK DTAA.
Accordingly, as Shell UK did not have a Permanent Establishment (PE) in India, the amounts payable to Shell UK do not represent income chargeable to tax and therefore it was not obliged to withhold tax on such amount under the provisions of section 195 of the Act.
Issues before the AAR
Whether the payments made by the Applicant to Shell UK for availing General BSS under the terms of the CCA would constitute “income” in the hands of Shell UK?
Whether the payments made by the Applicant to Shell UK for availing General BSS under the terms of the CCA would be considered as income in the nature of Fees for Technical Services (“FTS”) within the meaning of the term in Article 13 of the India-UK DTAA?
Whether the payments made by the Applicant to Shell UK for availing General BSS under the terms of the CCA would be in the nature of „royalty‟ within the meaning of the term in Explanation 2 to clause (vi) of Section 9(1) of the Act or under Article 13 of the India-UK DTAA?
Observations and Ruling of the AAR
The CCA provided that the activities were with respect to all downstream products and/or chemical business carried on by Shell India. Further, the nature of services rendered by Shell UK were in respect of:
– Contract and Procurement activities carried out by Shell India would extend from creating, approval, confirmation of purchase order to the receipt of material, invoicing and payment release
– Taxation advice services are services under which tax matters are to be overseen and coordinated globally and regionally. This will include matters like new market entries, mergers and acquisitions, financing and refinancing structures; and above all, tax policies and guidelines
– Legal Advice would be on specific projects or business proposals, tax advice
– The advice on information technology will include identifying opportunities for the Applicant to successfully utilize cost advantaged locations and resources for application development
Such services are of a highly specialized nature and involve special knowledge of the Applicant‟s business and industry and that the element of expertise or special knowledge on the part of the consultant is implicit in the consultancy services.
Though the CCA covered other services like management support, development, communication and audit of standards of performance and human resources, however, all the services were a congregation and cannot be segregated; the services in the nature of General BSS were of consultancy nature. Further industry specific expertise was provided to the Applicant which applied the same in running of its business.
The expression „make available‟ only means that the recipient of the service should be in a position to derive an enduring benefit and be in a position to utilize the knowledge or know-how in future on his own.
The meaning of the term „make available‟ as per the Memorandum of Understanding (MoU) to the India-US DTAA, would not be applicable as a treaty entered into by two sovereign States relating to rights and duties of subjects or citizens of the respective States in one another‟s possession.
The term „advise / advice‟ has been repeatedly used and the services were themselves called „support services‟ and thus, while providing General BSS, Shell UK worked closely with the employees of the applicant and supports/advises them and hence the services in the nature of General BSS could be construed as being made available to the Applicant.
The Applicant had contended in the context of royalty that it became the owner of know-how generated through the services and would be able to use the know-how so generated independent of the service provider. The AAR accordingly concluded that the services are clearly made available to Applicant.
Further, even if the provision of services did not involve element of profit, the same would constitute FTS and hence liable to be taxed.
Conclusion
The AAR, while analyzing as to whether the payments constituted income, held that even if the provision of services did not involve element of profit, the same would constitute FTS, liable to taxes..
Services received in the form of general finance advice, taxation advice, legal advice, advice on Information Technology, media advice, assistance in contract and procurement and assistance in marketing constitute services in the nature of consultancy services which make available know-how/ intellectual property to the recipient of such services and would tantamount to be taxed as FTS under the India-UK DTAA.
Payment under the aforesaid services included in the CCA would not constitute royalty under the Act and the India-UK DTAA.
Source: Shell India Markets Pvt. Ltd. (AAR No. 833 of 2009 dated 17th January, 2012)
Shell India Marketing Private Ltd („Applicant‟) is an Indian company having a network of retail fuel stations in India.
Shell International Petroleum Company Ltd. (Shell UK) is a Shell Group Company incorporated in UK and is engaged in the business of providing consultancy services to various Shell operating companies globally.
The Applicant entered into Cost Contribution Agreement (CCA) with Shell UK for the provision of Business Support Services (BSS) such as general finance advice, taxation advice, legal advice, advice on information technology etc.
On an application to the AAR for determining the taxability of the amount payable for such services the Applicant contended that:
– services are provided at cost and reimbursed by Shell Group entities and accordingly, no income arises to Shell UK under the present arrangement.
– rendering of business support services of advisory nature would not „make available‟ any technical knowledge, skill, experience, etc. to enable it to apply the technology contained therein and therefore, the same is not in the nature of fees for technical services within the meaning of Article 13.4 of the Agreement for Avoidance of Double Taxation between India and United Kingdom („India-UK DTAA‟).
– while contributing to the CCA, it became the economic owner of the know-how resulting from the services provided to it and therefore, the payment would not constitute royalty under section 9(1) of the Income-tax Act, 1961 (Act) or under Article 13 of the India-UK DTAA.
Accordingly, as Shell UK did not have a Permanent Establishment (PE) in India, the amounts payable to Shell UK do not represent income chargeable to tax and therefore it was not obliged to withhold tax on such amount under the provisions of section 195 of the Act.
Issues before the AAR
Whether the payments made by the Applicant to Shell UK for availing General BSS under the terms of the CCA would constitute “income” in the hands of Shell UK?
Whether the payments made by the Applicant to Shell UK for availing General BSS under the terms of the CCA would be considered as income in the nature of Fees for Technical Services (“FTS”) within the meaning of the term in Article 13 of the India-UK DTAA?
Whether the payments made by the Applicant to Shell UK for availing General BSS under the terms of the CCA would be in the nature of „royalty‟ within the meaning of the term in Explanation 2 to clause (vi) of Section 9(1) of the Act or under Article 13 of the India-UK DTAA?
Observations and Ruling of the AAR
The CCA provided that the activities were with respect to all downstream products and/or chemical business carried on by Shell India. Further, the nature of services rendered by Shell UK were in respect of:
– Contract and Procurement activities carried out by Shell India would extend from creating, approval, confirmation of purchase order to the receipt of material, invoicing and payment release
– Taxation advice services are services under which tax matters are to be overseen and coordinated globally and regionally. This will include matters like new market entries, mergers and acquisitions, financing and refinancing structures; and above all, tax policies and guidelines
– Legal Advice would be on specific projects or business proposals, tax advice
– The advice on information technology will include identifying opportunities for the Applicant to successfully utilize cost advantaged locations and resources for application development
Such services are of a highly specialized nature and involve special knowledge of the Applicant‟s business and industry and that the element of expertise or special knowledge on the part of the consultant is implicit in the consultancy services.
Though the CCA covered other services like management support, development, communication and audit of standards of performance and human resources, however, all the services were a congregation and cannot be segregated; the services in the nature of General BSS were of consultancy nature. Further industry specific expertise was provided to the Applicant which applied the same in running of its business.
The expression „make available‟ only means that the recipient of the service should be in a position to derive an enduring benefit and be in a position to utilize the knowledge or know-how in future on his own.
The meaning of the term „make available‟ as per the Memorandum of Understanding (MoU) to the India-US DTAA, would not be applicable as a treaty entered into by two sovereign States relating to rights and duties of subjects or citizens of the respective States in one another‟s possession.
The term „advise / advice‟ has been repeatedly used and the services were themselves called „support services‟ and thus, while providing General BSS, Shell UK worked closely with the employees of the applicant and supports/advises them and hence the services in the nature of General BSS could be construed as being made available to the Applicant.
The Applicant had contended in the context of royalty that it became the owner of know-how generated through the services and would be able to use the know-how so generated independent of the service provider. The AAR accordingly concluded that the services are clearly made available to Applicant.
Further, even if the provision of services did not involve element of profit, the same would constitute FTS and hence liable to be taxed.
Conclusion
The AAR, while analyzing as to whether the payments constituted income, held that even if the provision of services did not involve element of profit, the same would constitute FTS, liable to taxes..
Services received in the form of general finance advice, taxation advice, legal advice, advice on Information Technology, media advice, assistance in contract and procurement and assistance in marketing constitute services in the nature of consultancy services which make available know-how/ intellectual property to the recipient of such services and would tantamount to be taxed as FTS under the India-UK DTAA.
Payment under the aforesaid services included in the CCA would not constitute royalty under the Act and the India-UK DTAA.
Source: Shell India Markets Pvt. Ltd. (AAR No. 833 of 2009 dated 17th January, 2012)
1 comment:
There is some interesting information to read through on here, given that we are involved in Insolvency and some of the content is quite relevant.
Thanks for uploading.
Post a Comment