Tds rate applicable to payment to foreign company

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SUNIL KUMAR SINGH (Querist)
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23 April 2012 A creative agency based in Germany has provided/rendered services for development of two story boards and concept for television commercials to be used by an Indian Company only. The German Company does not have any PE or business connection in India. What will be tax incidence?
I think TDS should be deducted under ‘fee for royalty or technical services’. The rate prescribed in the DTAA with Germany is 10% as per Article 12 of the relevant DTAA.
But the German creative agency doesn’t have its PAN. As per section 206 AA of the Indian Income Tax Act the payee is required to supply the PAN no. otherwise TDS would be deducted at the higher of 10% or 20%.
What will be the effective rate of TDS? Is there any provision with the help of which we can mitigate the TDS liability?

C A S.S.Agarwal, M.Com.,LL.B,

C A S.S.Agarwal, M.Com.,LL.B, (Expert)
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28 April 2012 The German company has not rendered any services in Indian and accordingly the provisions of section 195 and section 9 shall not apply and no TDS is required to be made but the fee payment should route through RBI with certificate from CA.

SUNIL KUMAR SINGH

SUNIL KUMAR SINGH (Querist)
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01 May 2012 Excuse me, Sir. Section 9 of the Income Tax Act has been amended by Finanace Act, 2010. An explanation has been inserted after clause (vii) which runs as under:
Explanation.—For the removal of doubts, it is hereby declared that for the purposes of this section, income of a non-resident shall be deemed to accrue or arise in India under clause (v) or clause (vi) or clause (vii) of sub-section (1) and shall be included in the total income of the non-resident, whether or not,—

(i) the non-resident has a residence or place of business or business connection in India; or

(ii) the non-resident has rendered services in India.]
This explanation seeks to tax the transactions, if the services are utilized in India as discussed in the memorandum explaining the Finance Bill, 2010.
In our case since the services are to be utilized in India so I think it is taxable in India and TDS should be deducted. Sir, Please guide me on what rate TDS should be deducted?

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