in the case of M/s A.P. Moller (Taxpayer), a fiscally transparent partnership established under Danish law. One of the issues before the Tribunal was the eligibility of the fiscally transparent entity for benefits of the India-Denmark Double Taxation Avoidance Agreement (Danish DTAA). According to the Tribunal, once the income of a partnership is taxed in Denmark, irrespective of the fact that the same is taxed in the hands of the
partners, the entity should be treated as a resident of Denmark and is, thereby, entitled to benefits of the Danish DTAA. The Tribunal, thereafter, held that the shipping income arising from the activity of “managing owner” performed by the Taxpayer should be taxed in the hands of the shipping companies and not the Taxpayer. The shipping companies, being Danish tax residents, were not taxable in India under the Danish DTAA on income earned from international shipping operations. The management fees earned by the Taxpayer as a managing owner of the businesses of the shipping companies were also not taxable in India in the absence of a permanent establishment (PE) of the Taxpayer in India.
Bilateral tax treaties serve principally to avoid or minimize instances of double taxation within the context of cross-border transactions. Tax relief is achieved mainly by allocating certain taxing rights to the contracting states. Treaties, inevitably, fall short of adequately addressing income attribution whenever a conflict in classifying a particular entity exists between the source and resident states. That is particularly true for flow-through or fiscally transparent entities deriving income. Under a typical cross-border scenario, an entity will be regarded, for tax purposes, as a separate entity under a particular country's domestic law, yet viewed as fiscally transparent in another country. As most of India’s tax treaties do not contain specific provisions to deal with such situations, an issue that has often arisen in cross-border partnership taxation in India is whether a fiscally transparent foreign partnership can be regarded as a resident of the state where the partnership is organized. This ruling upholds entitlement to treaty benefits in such a case of conflict in qualification.
partners, the entity should be treated as a resident of Denmark and is, thereby, entitled to benefits of the Danish DTAA. The Tribunal, thereafter, held that the shipping income arising from the activity of “managing owner” performed by the Taxpayer should be taxed in the hands of the shipping companies and not the Taxpayer. The shipping companies, being Danish tax residents, were not taxable in India under the Danish DTAA on income earned from international shipping operations. The management fees earned by the Taxpayer as a managing owner of the businesses of the shipping companies were also not taxable in India in the absence of a permanent establishment (PE) of the Taxpayer in India.
Bilateral tax treaties serve principally to avoid or minimize instances of double taxation within the context of cross-border transactions. Tax relief is achieved mainly by allocating certain taxing rights to the contracting states. Treaties, inevitably, fall short of adequately addressing income attribution whenever a conflict in classifying a particular entity exists between the source and resident states. That is particularly true for flow-through or fiscally transparent entities deriving income. Under a typical cross-border scenario, an entity will be regarded, for tax purposes, as a separate entity under a particular country's domestic law, yet viewed as fiscally transparent in another country. As most of India’s tax treaties do not contain specific provisions to deal with such situations, an issue that has often arisen in cross-border partnership taxation in India is whether a fiscally transparent foreign partnership can be regarded as a resident of the state where the partnership is organized. This ruling upholds entitlement to treaty benefits in such a case of conflict in qualification.
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