Page 42 - Quick Insights Book 2022

Chap. 8 – International Taxation

 Assisting in carrying out various compliances under the PERMANENT ESTABLISHMENT
Act and/or allied laws like the Companies Act, PF Act,
FEMA, GST etc. to carry out cross-boarder transaction The concept of permanent establishment (‘PE’) gained
and merger etc. importance as many entities started carrying out business in
foreign countries by way of presence in that country either
ROYALTY AND FEES FOR TECHNICAL SERVICES through an office set-up or through any of its employee or
other personnel, agent, or through rendering of service As the
On account of increase in cross-border transactions, payments business is carried out by the entity in the foreign country, the
in the nature of royalty and fees for technical services right to tax income generated from such business should also
(‘FTS’) have also increased considerably. The Organization be with that foreign country.
for Economic Cooperation and Development (OECD) Model
Convention and the United Nations (UN) Model Convention This gives rise to the cross-border taxation based on the PE of
have an article for the taxation of royalty. However, the taxation the entity in the foreign country. The double taxation avoidance
of FTS was not there in both the Conventions. This is because, agreement has generally two type of permanent establishment
import of technical services is not common within the developed – fixed place and dependent agency PE. However, most of the
countries and thus, both the conventions never felt the need double taxation avoidance agreements (DTAA) which India has
to include an article on taxation of FTS. However, with the entered into with other countries has an additional concept of
changing times and considering the situation of the developing Service PE wherein if the employee or personnel of the foreign
countries, the recently amended UN Model Convention 2017 entity is present in India for more than the specified threshold
has included an article on taxation of FTS. limit providing services to another person/entity in India then
the said employee or personnel shall constitute a service PE
Many of the double taxation avoidance agreement which India of the foreign entity in India. Equipment PE is also considered
has entered into with the other countries does have an article in determination of taxability. Income attributable to the foreign
on taxation of fees for technical services. entity on account of the presence of such employee/personnel
in India shall be taxable in India if service PE exist.
Some of the solutions provided by Chartered Accountants
in relation to Taxation of Royalty/Fees for Technical services Some of the solutions which may be provided by Chartered
include: Accountants relating to Permanent Establishment aspects for
non-residents include:
 Tax advisory – Assist in evaluating whether a payment
would fall within the definition of ‘royalty’ or ‘fees for  Tax advisory – Analyze and review the facts of the
technical services’ both under the Act as well as under foreign entity in order to determine whether the said
the double taxation avoidance agreement. Based on the foreign entity has any permanent establishment in India
analysis, advice on the applicable tax rate for the said under the relevant double taxation avoidance agreement,
payment. read with the extant provisions of law including BEPS
Action plans;
 Documentation – Assist in collecting required documents
to determine rate of withholding tax like Non-PE  Income attribution – Assist the foreign entity in carrying
certificate, Form 10F, Beneficial interest certificate, out the exercise of determining the income attributable
details in lieu of PAN, etc. to the foreign entity in India on account of it having a
permanent establishment in India;
 Preparation and filing of Income-tax Return – Assist
the foreign entity in preparing and filing of the annual  Assistance in obtaining Tax Registrations – Assist
income-tax return declaring the income from royalty or the foreign entity in obtaining the tax identification
FTS in the income-tax return. number (Permanent Account Number) for its permanent
establishment in India from the income-tax authorities;
 Withholding tax return – Assist the Indian entity in
deducting taxes on royalty/FTS payments and preparing  Obtaining certificate under section 197 – Assist in making
and filing the withholding tax returns in relation to such an application to the income-tax officer to obtain a lower
payments made to foreign entities. withholding tax certificate under section 197 of the Act
basis the computation of estimated profits attributable
 Issuance of technical opinions on questions of law. to the permanent establishment of the foreign entity in
 Issuance of remittance certificates under Form 15CA/ India;
Form 15CB and other compliance certificates if any.  Preparation and filing of Income-tax Return – Assist the

 Representation before the revenue authorities including foreign entity in preparation and filing of the income-tax
appellate level and tax tribunal and allied assistance on return in relation to the permanent establishment in
litigation management including strategic advisory. India;

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