Indian tax authorities

Debunking taxation of cloud services as royalty 

Businesses are increasingly integrating cloud computing models into their operations, necessitating unambiguity regarding the position of tax leviable on such transactions under the Income-Tax Act, 1961 (“IT Act”), and tax treaties. Uniformity in the tax treatment of cross-border cloud computing models has become crucial for these businesses to plan their operations and tax costs effectively. A long-standing subject of scrutiny has been whether to consider the taxation of payment for cross-border cloud services as “royalties” or “fee for technical services” (“FTS”)/ “fee for included services” (“FIS”). However, in recent rulings, Indian courts have affirmed that such standardised services would not be liable to income tax in India.Continue Reading Debunking taxation of cloud services as royalty 

Beneficial ownership requirement not in-built in Capital Gains Article

Background

Historically, the Indo-Mauritius tax treaty has exempted capital gains arising to Mauritian investors from sale of shares of Indian companies, from being taxed in India. As a result, many investors used to structure their investments in India through entities incorporated in Mauritius, to claim this treaty benefit. This prompted the Indian tax authorities to renegotiate its tax treaty with Mauritius (and other countries), to, inter alia, acquire the right to tax capital gains arising from sale of shares of Indian companies and to introduce a limitation of benefits (“LOB”) clause, which excluded any shell/conduit company to claim certain benefits under the Indo-Mauritius tax treaty.

Even prior to such amendments, courts have denied the capital gain exemption under the Indo-Mauritius tax treaty to entities that were mere shell companies incorporated in Mauritius for the sole purpose of treaty shopping[1]. Recently, a similar question arose before the Mumbai Income-tax Appellate Authority (“ITAT”) in Blackstone FP,[2] where investments in Indian shares had been made prior to the amendment of the Indo-Mauritius tax treaty.Continue Reading Beneficial ownership requirement not in-built in Capital Gains Article