Article 12A - Fee for Technical Services - International Taxation - Income Tax

Article 12A - Fee for Technical Services As per OECD Model tax Convention There is no specific reference to Fee for Technical Services in the OECD Model. As per UN Model Tax Convention Confer Right of tax Fees for technical services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. [ Para 1 of Article 12A ] Rate of tax charge Notwithstanding the provisions of Article 14 and subject to the provisions of Articles 8, 16 and 17, fees for technical services arising in a Contracting State may also be taxed in the Contracting State in which they arise and according to the laws of that State , but if the beneficial owner of the fees is a resident of the other Contracting State, the tax so charged shall not exceed ___ % of the gross amount of the fees. the percentage to be established through bilateral negotiations. [ Para 2 of Article 12A ] Exception of Para 1 and 2 of Article 12A If the beneficial owner of fees for technical services, being a resident of a Contracting State, carries on business in the other Contracting State in which the fees for technical services arise through a permanent establishment situated in that other State, or performs in the other Contracting State independent personal services from a fixed base situated in that other State, and the fees for technical services are effectively connected with: (a) such permanent establishment or fixed base, or (b) business activities referred to in (c) of paragraph 1 of Article 7. In such cases the provisions of Article 7 or Article 14, as the case may be, shall apply. [ Para 4 of Article 12A ] Deemed to be arise in Contracting state Fees for technical services shall be deemed to arise in a Contracting State if the payer is a resident of that State or if the person paying the fees, whether that person is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the obligation to pay the fees was incurred, and such fees are borne by the permanent establishment or fixed base. [ Para 5 of Article 12A ] Exception Fees for technical services shall be deemed not to arise in a Contracting State if the payer is a resident of that State and carries on business in the other Contracting State through a permanent establishment situated in that other State or performs independent personal services through a fixed base situated in that other State and such fees are borne by that permanent establishment or fixed base. [ Para 6 of Article 12A ] Taxability of Excess payment made above specified percentage in Para 2 of article 12A Where, by reason of a special relationship between the payer and the beneficial owner of the fees for technical services or between both of them and some other person, the amount of the fees, having regard to the services for which they are paid, exceeds the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In such case, the excess part of the fees shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Convention. [ Para 7 of Article 12A ] Meaning of Fees for Technical Services The term fees for technical services as used in this Article means any payment in consideration for any service of a managerial, technical or consultancy nature, unless the payment is made: (a) to an employee of the person making the payment; (b) for teaching in an educational institution or for teaching by an educational institution; or (c) by an individual for services for the personal use of an individual. [ Para 3 of Article 12A ] The term payment has a broad meaning consistent with the meaning of the related term paid in Articles 10 and 11. the concept of payment means the fulfilment of the obligation to put funds at the disposal of the service provider in the manner required by contract or custom. As per Indian Law India is the pioneer of the Fee for Technical Services which was added to the Income tax act since 1976 some of our tax treaties do contain a specific provisions for Fee for Technical Services. Meaning as per Income Tax Act, 1961 Fees for technical services shall have define in the Explanation 2 u/s 9(1)(vii) Taxability - Tax on Fees for Technical Service in the case of Non-Corporate Non-Residents and Foreign Companies Section 115A