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Subscription charges separate from royalty for tax functions: Tax ruling

Subscription charges can’t be handled as royalty and entry to copyright content material is separate from entry to copyright itself a tax tribunal dominated lately that may give readability to a number of multinationals.

A US primarily based analysis firm was charging subscriptions for accessing its database and on-line journals to clients in India. The corporate was charging subscriptions from its India clients for accessing knowledge, copyrighted materials and analysis that sat on servers outdoors India.

Taxman had claimed that the subscription payment charged is basically royalty. The Mumbai tax tribunal mentioned that there’s a basic distinction between the 2 beneath India’s tax treaty agreements.

The tribunal mentioned that clients didn’t have any rights to use the copyright of the corporate’s software program.

Earnings (for the multinational’s India entity) was in respect of granting entry to e-journals, standardised reviews or analysis articles, which might solely be used for private use. By granting such entry, the corporate neither shared its methods or methodology nor employed in creating databases nor imparted any info on this regard, the tax tribunal mentioned.

“The ruling recapitulates the precept that the place the shopper is given solely a non-exclusive and non-transferable license for entry to a database on cost of sure subscription payment, with out involving switch of copyright of database or journals, the quantity in query doesn’t represent royalty earnings,” mentioned Rakesh Nangia, Managing Accomplice of Nangia Andersen India.

The earnings tax division had demanded tax from American Chemical Society, a US primarily based entity. The corporate provided desktop entry to databases to scientific content material to its clients primarily based in India. The corporate charged subscription charges for this.

Trade trackers say that the ruling might present a a lot wanted readability even for different multinationals together with OTT corporations. On this case, the US primarily based entity was coated via India-US tax treaty.

India has unilaterally launched an equalisation levy—a 6% tax on promoting income and a couple of% tax on all on-line sale of products or providers— relevant on all multinationals that provide providers in India.

The equalisation levy is about to go because the nation additionally appears to be like to hitch Organisation for Financial Co-operation and Growth’s (OECD) world tax deal.

The OECD’s world tax deal now implies that the Indian corporations might see their tax legal responsibility go up within the close to future. OECD lately introduced collectively 136 nations to simply accept a deal to make sure that giant multinationals pay a minimal tax of 15% on their world incomes from 2023 and people with income above a threshold must pay taxes within the markets the place they conduct enterprise.

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