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TMI Blog2020 (1) TMI 1474X X X X Extracts X X X X X X X X Extracts X X X X ..... iven these peculiar facts, we are of the considered view that the social security, insurance, relocation expenses which are in the nature of committed and obligated payments are in the nature of reimbursements and not fee for technical services. In regard to administrative expenditure paid to KRP for performing the facilitative and disbursing agency role, the applicant has himself admitted that payments are subject to tax deduction under section 195 (para 8.2.27 of rejoinder letter) and though no specific submissions were made by the learned authorised representative about its nature, we presume that in the light of the admitted question the applicant has no objection for treating the charges as fees for technical services and thus the issue does not require our adjudication. Ruling: 1. The social security, insurance, relocation expenses which are in the nature of committed and obligated payments are in the nature of reimbursements and not fee for technical services. 2. As admitted by learned authorised representative, the administrative fee paid to KRP is liable for tax deduction under section 195 as fee for technical services. - A. A. R. No. 1366 of 2012. - - - Date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich the advance ruling is required : 1. On the facts and circumstances of the case, whether payment to be made by the applicant to KRP towards payments to be made on behalf of the employees of the applicant towards portion of salary, social security contribution, insurance, etc., would be chargeable to tax in India, in the hands of the KRP, as per the provisions of the Income-tax Act, 1961 (Act) read with the provisions of the double taxation avoidance agreement entered into between India and Swiss confederation (tax treaty), 2. In case the answer to question 1 is in the affirmative, under which section of the Act or the article of the treaty would the payment be taxable ? 3. In case the answer to questions 1 and 2 are in the affirmative, at what rate under section 195 of the Act would the applicant be obligated to withhold taxes on the above payments ? 3. The Authority For Advance Rulings (Income-tax), New Delhi vide order dated January 7, 2015 rephrased the question in its admission order under section 245R(2) : Heard Shri Rajan Vora, learned counsel for the applicant and Shri Munesh Kumar for the Department. The question which falls for con sideration i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payments to be made by the applicant to KRP for disbursement of payments towards salary and social security contribution to expatriate personnel of the applicant have already suffered Indian tax in the hands of the expatriate personnel and if subsequent reimbursement of cost is also made liable for taxes, it will result in double taxation of the same amount. 7. Without prejudice the applicant submits that the term fees for technical services (FTS) is defined under the article 12(4) of the India-Swiss Tax Treaty to include : . . . payments of any kind to any person in consideration for the rendering of any managerial, technical or consultancy services, including the provision of services by technical or other personnel. The applicant submits that KRP merely disburses payments to expatriate personnel on behalf of the applicant and hence reimbursement of the same does not amount to payment towards fees for technical services. Department's submission 8. The Department mentions that- (a) KRP assigned the expenditure personnel to the applicant. (b) The applicant can exercise control only during the period of assignment. (c) The power to recall expatriat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... divided as below by KRP to escape tax liability : (a) Direct salary payment to expatriate personnel ; (b) Reimbursements to KRP for salary payment outside India ; and (c) Administration fee charged by KRP for acting as payroll disbursement agent. 14. The Department has further stated that, the salary payment made from India by the applicant to expatriate personnel should also form part of consideration for the technical services rendered in addition to reimbursement made to KRP. 15. Accordingly, for the above reasons, that reimbursement of salary cost paid/payable by the applicant to overseas entities under the terms of intercompany agreement was in the nature of fees for technical services income occurred to the KRP ; and therefore, tax is liable to be deducted at source under section 195 on amount paid/payable by the applicant to salary payments of expatriate personnel. Rejoinder by applicant 16. The applicant submits that payment by the applicant to KRP does not qualify as fees for technical services ( FTS ) under the provisions of the Act or the India-Swiss Tax Treaty. Explanation 2 to section 9(1)(vii) of the Act which defines the term fees for tech ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r and on behalf of KRP. This is further fortified by the fact that the expatriate personnel would work under the control, supervision and directions of the applicant. 21. Without prejudice to the above, it is submitted that the applicant is eligible to claim benefit as per para 5 of the protocol to the India-Switzerland tax treaty which provides for taxation of fees for technical services in accordance with the provisions of the Double Taxation Avoidance Agreement between India and a member of the Organisation for Economic Co-operation and Development countries entered into after the signing of the amending protocol, where such provisions provide for a lower rate or restrictive scope of taxation on royalties/fees for technical services etc. 22. In view of the above, the applicant wishes to place reliance on the restricted scope mentioned as per the provisions of the India-Portugal tax treaty which is signed post signing of protocol with Switzerland and defines the term fee for included services ( FIS ) as consideration for rendering any technical or consultancy services (including through the provision of services of technical or other personnel), if such services make availa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall put at the disposal of the company expatriate personnel and will bill the said company for the part of effective operational costs and tax expenses due. On the other hand, and as much as local needs ask for it, the company : -will manage and be responsible for the personnel appointed with it ; -give them instructions of execution for duties to be carried out locally and shall supervise them ; -shall bear sole liability and be responsible for every act or failure of said personnel during the time of appointment, as well as for any act or failure in violation of the protective dispositions of personnel (in particular as concerns occupational safety and health) that it could commit to its detriment ; -reserves the right to end the contract (and amendments for appointments) with employees appointed with it. Responsibility as to personnel KRP hereby agrees to release and discharge the personnel from all obligation and rights whatsoever, including any lien on employment, if any, and from all actions, claims and demands towards KRP, while they were working as employees of the company during the assignment. KRP hereby also agrees that while the personnel is in Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, skill and attention to the business of the company and promote the interest of the company. Therefore, you shall not, during your employment with the company, except with the knowledge and prior written consent of the management, directly or indirectly embark on or engage in any outside activity, business undertaking or employment, gratuitously or for profit. 26. A perusal of the above documents reveal that there is no lien on employment of the seconded employees with the applicant and also the applicant has the power to terminate the employment and the employee is forbidden to supply his capacity to work to someone else during the period of employment. It is also observed that KRP is providing suitable personnel to the applicant and the applicant is exercising full operational control and the employee is required to abide by policy regulations and guidelines of the applicant-company. On the request of the authority a certificate was also submitted by the KRP and the applicant that the KRP only shared the profile of the expatriate personnel and the process of selection was entirely left with the applicant. It is also avowed that the expatriate personnel are released in their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rseas concerns were in the business of supplying gas and electricity to consumers across the UK and Canada. The overseas entities outsourced their back office support functions for instance, debt collections/consumers' billings/monthly jobs to third party vendors in India. To ensure that the Indian vendors comply with quality guidelines, the assessee was established in India to act as service provider to those overseas entities. To seek support during initial year of its operation, the assessee sought some employees on secondment from the overseas entities. For this purpose, it entered into an agreement with the overseas entities in which the latter seconded some employees for fixed tenure. In terms of the secondment agreement, the employees so seconded worked under the assessee's direct control and supervision. The seconded employees continued to remain on the payroll of the overseas entities who used to pay and disburse the salaries. The assessee reimbursed such salary costs to the overseas employers, entities, of the actual costs of expenses incurred under secondment agreement. Under these facts the hon'ble High Court held that the overseas entities were not respon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... again the parent company paid salary and other benefits in home countries of expatriates whereas in the case before us save for minimal obligated payments, no payments are made outside India. 31. It is common knowledge that in large multi-national companies the talent pool of personnel is deployed to various countries and these personnel move from one location to another. They are liable for certain statutory contributions such as social security contribution in their home countries. To facilitate the statutory commitment towards retirement, insurance, etc. in home country some funds are received in their home countries. The parent company assigns this work to some common agency of the group to perform these tasks seamlessly. KRP performs this task in the current case. The payments by KRP are on behalf of the applicant which are subsequently reimbursed by the applicant. 32. The KRP is not exercising any operational or functional control over the employees of the applicant. It is not paying any perquisite or performance related payments to the personnel. It is merely paying statutory payments on behalf of the personnel in their home countries. This is clearly a supportive fun ..... X X X X Extracts X X X X X X X X Extracts X X X X
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