One of my clients wish to obtain certain services from a Non Resident Individual stationed in Spain. Can the amount being paid to such Non Resident be treated as Royalty or is it Fees for Technical Service. What is the rate at which TDS is to be done?
The non resident will be helping in developing an application software which will be later on sold in India. For developing the software the Non resident is not coming to India and also does not have a permanent establishment here.
Should you require any more of the info i'm glad to furnish it to you.
22 November 2013
Prima facie, I am able to conclude the following:
Due to the complex nature of Section 9, the available jurisprudence and also the facts of your case, I am not able to decide between Royalty and FTS for taxability under the IT Act.
However, both suffer the same rate of TDS @ 25% and there is no concession for classifying it the either way.
Now, under DTAA,
The payment being made to the NR Individual in Spain would represent 'Independent Personal Services' and hence taxable only in Spain.
Thus applicable rate as per DTAA is NIL. Hence, notwithstanding the taxability under IT Act, be it as Royalty/ FTS, no TDS is required to be made.
Article 13 of India-Spain DTAA:
Royalties and fees for technical services
3. The term “royalties” as used in this Article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work, including cinematographic films or films or tapes used for radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience.
Hence, the payment is not Royalty.
4. The term “fees for technical services” as used in this Article means payments of any kind to any person OTHER THAN payments to an employee of the person making the payments and to any individual for independent personal services mentioned in Article 15 (Independent Personal Services), in consideration for the services of a technical or consultancy nature, including the provision of services of technical or other personnel.
Hence the payment is not FTS under the DTAA as payment is made to an individual and also the payment is of a technical/ consultancy in nature.
Now, going to
Article 15 of India-Spain DTAA:
Independent personal services -
1. Income derived by a resident of a Contracting State from the performance of professional services or other independent activities of a similar character shall be taxable only in that State except in the following circumstances when such income may also be taxed in the other Contracting State :
(a) if he has a fixed base regularly available to him in the other Contracting State for the purpose of performing his activities; in that case, only so much of the income as is attributable to that fixed base may be taxed in that other State; or
(b) if his stay in the other Contracting State is for a period or periods amounting to or exceeding in the aggregate 183 days in the relevant “taxable year”; in that case, only so much of the income as is derived from his activities performed in that other State may be taxed in that other State.
2. The term “professional services” includes independent scientific, literary, artistic, educational or teaching activities, as well as the independent activities of physicians, surgeons, lawyers, engineers, architects, dentists and accountants.
This refers to "professional services or other independent activities of a similar character" which can include even consultancy/ technical services.
Further, you can also bring it under professional service, if the non-resident is an independent engineer in Spain.
So to conclude the case, Ind Personal services are taxable only in the country of residence, i.e Spain.
PLEASE NOTE THAT THIS REFLECTS ONLY MY OPIN ION AND I WELCOME THE OPINION OF THE OTHER EXPERTS.
KINDLY SATISFY YOURSELF BEFORE YOU TAKE A STAND ON THE ISSUE.
CAclubindia
