WWLegal.com :: No Withholding Tax On Referral Fee Paid By India Company To Singapore Associate

No Withholding Tax On Referral Fee Paid By India Company To Singapore Associate
Posted on Monday, July 14, 2008 - 12:00 AM

The Indian Authority for Advance Ruling (AAR) ruled on 4 July 2008 that 'referral fees' paid to overseas associate by Indian companies will not be subject to withholding taxes in India because of the India-Singapore tax treaty.

"The receipt on account of the referral fee arising to the applicant would not be taxable in India...," the AAR said while giving a ruling in a reference made by Singapore-based real estate consultant Cushman & Wakefield Pte Ltd (CWS). CWS had received a referral fee from its associate in India, Cushman & Wakefield India (CWI).

The AAR ruled that the referral fee is not a royalty or a fee for technical services or taxable in India as business income because CWS does not have a permanent establishment or business connection in India. The referral fee was not received in India nor did it accrue or arise in India and hence, it is beyond the scope of the charging provision in the Indian Income tax Act.

There is no real or “intimate” relation between the activities carried on outside India by CWS and the activities carried on in India that contributed to the earning of income and, hence, there is no “business connection” in India.

The AAR also held that the referral fees did not constitute technical service fees under the India-Singapore tax treaty, since no expertise or know-how was “made available” to CWI by reason of rendering services.

Since the referral fees are not chargeable to tax in India, CWI is not required to withhold tax on the payments to CWS.

Although the AAR ruling is binding only on the taxpayer and the Indian tax authorities, it does carry persuasive value in other cases. This ruling could be relied upon by non-India resident taxpayers that do not have any business connection in India and receive income by referring clients to its Indian subsidiary or affiliate.

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