20 October 2009
An existing software development company wants to transfer its existing customer contracts to another overseas company. The terms of the assignment will be such that the overseas company will do the balance billing on the clients and the indian company will bill the overseas company at an agreed man month rate for the work that will be carried out by the employees of the indian company on the contracts.
How should this assignment of contracts be structured? Will any provisions of the IT Act be attracted?
20 October 2009
Let me know the transactions in detials. Whether he exisiting software comapny is an Indian Company or overseas company. Further, is there any agreement betweent the overseas co. and the existing co,etc, can you bifurcate the entire contract amount. In relation to IT Act, Transfer Pricing, TDS, etc.
The existing software company is an indian company. It has a wholly owned subsidiary company overseas. This overseas company has formed a JV (30%:70%)with another overseas company. Now the indian company wants to enter into an agreement with this JV company to assign its existing ongoing contracts in India and overseas.
Its proposed that the future billing for the balance work on the assigned contracts will be done by the JV company and the revenue will accrue to it. It will however take the help of the indian company (basically the employees) for rendering the services on these contracts for which the Indian company will bill the JV company at an agreed man month rate for using its employees.
Hope these details will suffice. Pls do let me know your views on how to structure this agreement and what are the provisions of the IT Act that one should bear in mind.
27 November 2009
Hi, Under IT Act, you have to keep in mind that the withholding taxes under section 195, transfer pricing rules, principles, PE concept, etc. The agreement should be very clear about the nature of services. The terms and conditions between Indian company and overseas JV since if the Indian company is providing manpower (i.e employees only) to the project directly to the overseas JV it would attract services to the Indian Company (however, can export without payment of ST). Hope the above clarifies you.
CAclubindia
