Comments
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, the Mumbai Income-Tax Appellate Tribunal has ruled.
The ruling is significant in the context of e-commerce transactions, say tax experts. The tribunal ruled that the fees received from customers for use of an online platform cannot be characterised as fees for technical services (FTS) under income-tax law. Such fees are in the nature of ‘business profits’, it said.
The tribunal concluded that eBay International had no permanent establishment (PE) in India and, therefore, the ‘business profits’ earned here were not taxable.
eBay International operates two India-specific Web sites which provide an online platform to facilitate the purchase and sale of goods and services to users in India. Both are operated from outside India.
The e-tailer earned revenues from the sellers of goods who were required to pay a user fee on every successful sale on the Web site. It had engaged its Indian affiliates — eBay India and eBay Motors — for getting certain support services in connection with the Web sites for which it had entered into a marketing support agreement. The affiliates collect the user fee and remit it abroad to eBay International.
Both eBay International and the Indian tax authority had filed an appeal before the Mumbai Tribunal raising two issues: One, whether the user fee from sellers in India would be in the nature of fees for FTS under the income-tax law. And, two, whether the Indian affiliates constituted PE for eBay International under the India-Switzerland double taxation avoidance agreement.
Upholds classification
The tribunal ruled that the consideration received by eBay International did not fall within the FTS definition under the income-tax law and upheld the classification of income as “business profits”.
On PE under the DTAA, it held that the Indian affiliates were “dependent agents” of eBay International, as they were legally and economically dependent on the taxpayer (eBay International). But they do not constitute a PE for eBay International as they do not have an 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 perform only market support services for eBay International and have no role to play in the online business between sellers, buyers and eBay International.
Comments
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.