Delhi Tribunal rules that a US based company engaged
Transkript
Delhi Tribunal rules that a US based company engaged
KPMG FLASH NEWS KPMG IN INDIA Delhi Tribunal rules that a US based company engaged in the business of money transfer does not have a Permanent Establishment in India under the India-USA tax treaty 16 January 2012 Background Facts of the case Recently, the Delhi bench of the Income-tax Appellate Tribunal (the Tribunal) in the case of Western Union 1 Financial Services Inc. (the taxpayer) held that the taxpayer’s agents in India were independent agents under Article 5(5) of the India-USA tax treaty (tax treaty). Accordingly, there was no Dependent Agent Permanent Establishment (DAPE) of the taxpayer in India. • The taxpayer, a company incorporated in USA, is engaged in money transfer business world-wide. For enabling transfer of money to beneficiaries in India, the taxpayer entered into agreements with the agents i.e. Department of Posts, commercial banks, non-banking financial companies and tour operators. • The business process of the taxpayer is as follows: Further, the Tribunal observed that the taxpayer did not have right to enter and make use of the premises of the agents for its business. Accordingly, it was concluded that there was no fixed place PE of the taxpayer in India as per Article 5(1) of the tax treaty. A person in USA desirous of remitting money to another person in India approaches the agents of the taxpayer in USA and pays the money in dollars together with the charges. The person is given a receipt by the taxpayer along with a computer-generated unique 10 digit number referred to as MTCN (Money Transfer Control Number). The remitter sends the said unique number to the beneficiary in India who would approach the taxpayer's representative/agent in India with MTCN. The Tribunal has also distinguished the decision in the 2 case of Amadeus Global Travel Distribution SA in an elaborate and detailed manner. ____________ 1 DDIT v. Western Union Financial Services 1574/Del/2010) 2 Inc (ITA no.1572 to Amadeus Global Travel Distribution SA 113 TTJ 767 (Del) © 2012 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The agent accesses the mainframe computer of the taxpayer in USA and verifies the MTCN with the help of software. After matching the number and satisfying himself about the identity of the recipient/claimant, the agent would pay the money to the beneficiary in India. • The taxpayer had opened, with the approval of RBI, Liaison offices (LO) in India. • After perusing the facts the AO held that: • The LOs actively participated in the business of the taxpayer in the form of marketing, appointment of agents, brand building, providing software to the agents and imparting training to them in India. Accordingly, LOs were a virtual projection of head office in India and thus constituted taxpayer’s PE in India. Tax department’s contentions The tax department relied on the decision in the case of Amadeus Global Travel Distribution SA to contend that the Tribunal has taken a different view regarding existence of PE in a case subsequent to taxpayer’s case. Further since the vital facts were similar in both the cases, the tax department contended that matter should be decided by following later decision of Tribunal in case of Amadeus Global Travel Distribution SA. Tribunal’s ruling • The Tribunal relied on the earlier Tribunal decision in the taxpayer’s own case where it was held that: Further, dedicated systems installed in the premises of various agents, through which the business was carried on, ensured connectivity between the taxpayer and the premises of the agent. Hence, these systems also constituted ‘PE’ in India. The agents viz. the Department of Posts, commercial banks, non-banking financial companies and tour operators, have their own or hired premises from which they operate. The agents were economically and technologically dependent on the tax payer and were working almost wholly and exclusively for the taxpayer. Further they had the authority to conclude contracts on behalf of the taxpayer and appoint sub-agents. Hence, they constituted taxpayer’s DAPE. The agents only display taxpayer’s board which could not by any stretch of imagination amount to taxpayer’s projection in India. The Department of Posts, or the commercial banks could not be looked upon as projecting the taxpayer’s presence in India. Also there was no evidence that the taxpayer could, as a matter of right, enter and make use of the premises of these agents for its business. Accordingly, it was concluded that there was no fixed place PE of the taxpayer in India within the meaning of Article 5(1) of the tax treaty. The taxpayer’s agents in India were independent agents under Article 5(5) of the tax treaty since: The taxpayer had a full-fledged office in India which was conducting aggressive marketing activities together with negotiations with the agents, providing software to them and imparting training about the product. There was continuity of the transaction which was completed only when the money was paid the beneficiary in India. Accordingly, there was ‘business connection’ in India and the taxpayer was liable under Section 9(1) of the Income-tax Act, 1961 (the Act) to pay income-tax on the profits arising from its activities in India. Commissioner of Income-tax Appeals [CIT (Appeals)] 3 followed the decision in taxpayer’s own case for AY 2001-02 and concluded that since facts of all assessment years under consideration were the same, the findings of Tribunal in respect of existence of ‘business connection’ & ‘PE’ shall apply to these assessment years as well. Accordingly, CIT (A) held that the taxpayer had a business connection for all the relevant assessment years but did not have a PE in India. - the agents were acting in the ordinary course of their business; - their activities were not devoted wholly or almost wholly to the foreign enterprise and - the transactions were under arm's length. There was no express authority given to the agents in the agreement to conclude contracts on the behalf of the taxpayer. The fact that the agents had the authority to appoint sub-agents did not mean that the agents had the authority to conclude contracts. __________ 3 Western Union Financial Services Inc. v. ADIT [2007] 104 ITD 34 (Del) © 2012 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The fact that the agents complete the taxpayer’s commitment in India (i.e. remitting money to the beneficiary in India) could not be considered as an authority to conclude contracts. The contract was between the remitter abroad and the taxpayer and was entered into outside India. The agents merely carried out the concluding step in the arrangement embodied in the contract. By making payment to the beneficiary, the agent in India was only performing his duty under the agreement of agency, for which he was remunerated. Accordingly, the agents were not exercising any authority to conclude contracts on behalf of the taxpayer. • • There was business connection and hence the taxpayer was liable to tax under Section 9(1) of the Act; but since there was no PE in India under Article 5 of the tax treaty between India and the USA, no profits could be attributed to the Indian operations of the taxpayer and taxed in India. The Tribunal distinguished the fact of the Amadeus Global Travel Distribution SA ruling from the taxpayer. In the case of Amadeus Global Travel Distribution SA, the taxpayer exercised complete control over the computers installed at the premises of the subscribers and this amounted to a fixed place of business for carrying on the business of the enterprise in India. Further, the agent was a dependent agent of the taxpayer and had authority to conclude contract on behalf of the taxpayer and in fact, had entered into contact with the travel agents in India on behalf of the taxpayer. Further, the ticket, which was the contract between the passenger and the airlines was made and delivered in India. The payment for such ticket was made in India. Therefore the, Tribunal had concluded that the taxpayer had a PE in India. In the taxpayer’s case, the taxpayer did not exercise any control over the computer systems which were independently owned by agents and were not provided by the taxpayer. The activities of the agents were not wholly or almost wholly devoted on behalf of the taxpayer and that the agents were not ‘dependent agents’ of the taxpayer nor had they any authority to conclude contracts in India on behalf of Western Union. The contract is between the remitter abroad and the taxpayer which is entered into outside India. The agents merely carried out the concluding step in the arrangement embodied in the contract. In other words, the taxpayer undertakes outside India to transfer the money to India and it is only the payment part of the undertaking that is executed by the agents in India. The tax department has not attempted to explain as to how facts and circumstances in the ruling of Amadeus Global Travel Distribution SA are parallel to the facts and circumstances of the taxpayer’s case. Accordingly, the Tribunal held that that the reliance placed by the tax department on the decision in the case of Amadeus Global Travel Distribution SA was rendered in different context and circumstances. Accordingly, relying on the earlier decision in the taxpayer’s own case and the above mentioned distinguishing facts, the Tribunal held that: The software installed machines did not constitute fixed place PE of the taxpayer; The liaison offices did not constitute PE of the taxpayer; The representative / agents did not constitute DAPE of the taxpayer; and No profits were attributable to the Indian operations of the taxpayer Our comments This is a welcome ruling where the Delhi Tribunal has analysed the India-USA tax treaty to hold that the taxpayer did not have a DAPE in India neither did it have a fixed place PE in India. . © 2012 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. www.kpmg.com/in Ahmedabad Safal Profitaire B4 3rd Floor, Corporate Road, Opp. Auda Garden, Prahlad Nagar Ahmedabad – 380 015 Tel: +91 79 4040 2200 Fax: +91 79 4040 2244 Hyderabad 8-2-618/2 Reliance Humsafar, 4th Floor Road No.11, Banjara Hills Hyderabad 500 034 Tel: +91 40 3046 5000 Fax: +91 40 3046 5299 Bangalore Maruthi Info-Tech Centre 11-12/1, Inner Ring Road Koramangala, Bangalore 560 071 Tel: +91 80 3980 6000 Fax: +91 80 3980 6999 Kochi 4/F, Palal Towers M. G. Road, Ravipuram, Kochi 682 016 Tel: +91 484 302 7000 Fax: +91 484 302 7001 Chandigarh SCO 22-23 (Ist Floor) Sector 8C, Madhya Marg Chandigarh 160 009 Tel: +91 172 393 5777/781 Fax: +91 172 393 5780 Chennai No.10, Mahatma Gandhi Road Nungambakkam Chennai 600 034 Tel: +91 44 3914 5000 Fax: +91 44 3914 5999 Delhi Building No.10, 8th Floor DLF Cyber City, Phase II Gurgaon, Haryana 122 002 Tel: +91 124 307 4000 Fax: +91 124 254 9101 Kolkata Infinity Benchmark, Plot No. G-1 10th Floor, Block – EP & GP, Sector V Salt Lake City, Kolkata 700 091 Tel: +91 33 44034000 Fax: +91 33 44034199 Mumbai Lodha Excelus, Apollo Mills N. M. Joshi Marg Mahalaxmi, Mumbai 400 011 Tel: +91 22 3989 6000 Fax: +91 22 3983 6000 Pune 703, Godrej Castlemaine Bund Garden Pune 411 001 Tel: +91 20 3050 4000 Fax: +91 20 3050 4010 The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. © 2012 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative International”), Swiss entity. Allarights reserved. ©(“KPMG 2012 KPMG, an Indian aPartnership and member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity“ are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity.