eBay International AG, a Swiss tax resident, need not fork out any income-tax on the profits earned from its two India-specific Web sites.
This ruling of the Mumbai Income Tax Appellate Tribunal is a significant one in the context of e-commerce transactions, say tax experts.
The Tribunal has ruled that fees received from customers for use of an online platform cannot be characterised as fees for technical services (FTS) under the Income Tax Law. Such fees are in the nature of ‘business profits’.
It has concluded that eBay International has no permanent establishment (PE) in India and, therefore, the ‘business profits’ earned here ar not taxable in India.
eBay International operated two India-specific Web sites which provided an online platform to facilitate the purchase and sale of goods and services to users in India. Both the Web sites are operated from outside India.
eBay international earned revenues from the sellers of goods who were required to pay a user fee on every successful sale of their products on the Web site.
The e-tailer had engaged its Indian affiliates — eBay India and eBay Motors — for availing of certain support services in connection with the Web sites for which it had entered into a marketing support agreement.
Both eBay International and the Indian tax authority had filed the appeal before the Mumbai Tribunal.
There were two issues before the Tribunal — whether the user fee from sellers in India would be in the nature of fees for technical services (FTS) under the Income Tax Law.
The other issue was whether the Indian affiliates constituted PE for eBay International under the India-Switzerland double taxation avoidance agreement.
The Mumbai ITAT ruled that the consideration received by eBay International does not fall within the FTS definition under the Income Tax Law.
The Tribunal upheld the classification of the income as “business profits”.
On the aspect of PE under the DTAA, the Tribunal held that the Indian affiliates are “dependent agents” of eBay International, as they are legally and economically dependent on the taxpayer (eBay International).
But they do not constitute a PE for eBay International as they do not have the authority to conclude contracts on behalf of the Swiss tax resident.
Also, the Indian affiliates do not constitute a PE under the “place of management” clause because they only perform market support services for eBay International.
They have no role to play in the online business between sellers and the buyers or between seller and eBay International.
The Tribunal has, in this ruling, reiterated the principle that revenue earned by operating an online facility is in the nature of business profits not FTS.