AAR rules that the
Applicant (a Singaporean MasterCard group company) has a fixed place PE,
service PE and dependent agent PE in India under Article 5 of the India
Singapore DTAA in respect of the services with regard to use of a global
network and infrastructure to process card payment transactions for Customers
in India; AAR notes that the transaction processing activity consists of
electronic processing of payments between banks of merchants and cardholders
through the use of MasterCard Worldwide Network (‘the Network’) and the MlPs
(MasterCard Interface Processor) are located at the Customers' locations in
India that connects to MasterCard's Network and processing centers; Holds that
MIPs and MasterCard Network create a fixed place PE of the Applicant in
India, even if MIPs are automatic equipment placed at the site of customer
banks in India, holds that they pass the test of permanency and they are
at the disposal of the Applicant despite not being owned by Applicant; Holds
that MIPs in India carried out significant functions of preliminary
verification/validation of PIN, card codes, names and address in India
which facilitate authorization part of the transaction processing
and cannot be said to be preparatory or auxiliary; Notes that though MIPs
are owned by Indian subsidiary (‘MISPL’), but considering the FAR profile of
MISPL which shows that it is performing support activity and not actual
transaction processing, AAR holds that “This clearly means that authorization
part of the transaction processing activity, carried on by MIPs, is the
activity of the Applicant and not of MISPL.”, further notes that the
software inside MIP is owned by the Applicant; Further, holds that MasterCard
Network also creates a fixed place PE considering significant activities
relating to clearance and settlement taking place in India through the
MasterCard Network; Likewise, AAR observes that the India subsidiary (‘MISPL’)
constitutes Applicant's PE in India , finds force in Revenue’s submission that
while erstwhile LO (the activities of which are now taken over by
subsidiary) was doing transaction processing activity accepting 100% income
attribution, MISPL is shown doing only support activities, resulting in drastic
reduction of income returned in India; Holds that since transaction processing
activities carried out in India through MIP and MasterCard Network are not
reflected in FAR analysis of MISPL, to that extent it constitutes fixed place
PE for the Applicant; Also upholds constitution of service PE on
account of Applicant’s employees visiting India and constitution of Dependent
agent PE for MISPL securing orders for the Applicant; Extensively relies
upon Formula one, e-Funds, Morgan Stanley rulings, subsidiary’s TP
report, also relies on Amedeus and Galileo rulings; On royalty taxation, AAR
holds that “licensing of various IPs in the form of brand/trade name/mark etc.
are not incidental to the activity of transaction processing and the payment
made by various customer banks in India to the Applicant is also for the use of
these IPs and hence is royalty.”, also upholds royalty taxation for use of
equipment, software and secret process; However, AAR clarifies that since the
payment is effectively connected with various types of PEs held as above, “it
would get taxed with the PE under Article 7 and not under Article 12.”; Lastly,
AAR clarifies that arm’s length remuneration to PE on account of Indian
Subsidiary for the activities performed / to be performed in India, would not
absolve the Applicant from any further attribution of its global profits in
India since the FAR of the Indian Subsidiary does not reflect the
functions/risks of the Applicant performed/undertaken by it:AAR
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