Section 9 (i) (vii), Article 5 Indo-Swiss DTAA – Where an FCo, providing online platform to facilitate purchase and sale of goods and services to users in India has no role to play in effecting the sale, the fee received from the sellers on successful sale cannot be designated as consideration for rendering managerial, technical or consultancy service – “dependent agents” of FCo legally and economically dependent on FCo, do not result in a PE for FCo if they do not have an authority to conclude contracts.
Facts
The Taxpayer, a Swiss Company (FCo), operated India-specific websites which provided an online platform for facilitating purchase and sale of goods and services to users based in India.
FCo earned revenues from the sellers of goods, who were required to pay a user fee on every successful sale of their products on the website.
Further, FCo had engaged its Indian affiliates (ICos) for availing certain support services in connection with the website for which it had entered into a Marketing Support Agreement (MSA).
The Tax Authority considered FCo’s income to be in the nature of Fees for Technical Services (FTS) which was taxable under the IT Act. Additionally, the Tax Authority took the view that FCo had a dependent agent permanent establishment (DAPE) in India on account of arrangements with ICos.
The issues before the Tribunal were:
(i) Whether the user fee from the sellers in India was in the nature of FTS under IT Act?
(ii) Whether ICos constituted a Permanent Establishment (PE) for FCo under India- Switzerland DTAA?
Held
Characterisation as FTS under the IT Act FCo’s websites are analogous to a “market place” where the buyers and sellers assemble to transact. FCo only provides a platform for doing business and cannot be regarded as rendering managerial services to the buyer or the seller.
Services are said to be technical when special skill or knowledge relating to a technical field is required for the provision of such service. Where technology is used in developing or bringing out any standard facility and the provider of such ‘standard facility’ receives some consideration in lieu of allowing its use, the users cannot be said to have availed any technical service from the provider by the mere act of using such standard facility.
There is no point at which FCo renders any consultancy service, either to the buyer or to the seller, as regards the transaction. It is also not possible for the buyers to consult FCo as regards the product to be purchased by them.
Thus, apart from making the websites available in India on which various products of the sellers are displayed, FCo has no role to affect the sales. Consequently, the consideration does not fall within the purview of FTS under the IT Act.
Whether ICos constitute a PE
ICos are dependent agents of FCo as ICos are legally and economically dependent on FCo. However, the following features suggest that ICos do not constitute a DAPE of FCo and hence the income is not taxable in India:
Websites are not directly or indirectly controlled by ICos and they have no role in directly introducing users to FCo.
The agreements between the sellers and FCo and the finalisation of transactions between the sellers and the buyers (without any interference or involvement of ICos) are done through the websites situated and controlled from abroad.
Further, the various conditions (i.e., concluding contracts, maintenance of stock and delivery of goods, manufacture or processing of goods) required to constitute a DAPE are also not satisfied by ICos.
Also, ICos do not constitute a PE under the “place of management” clause because ICos perform only market support services for FCo; they have no role to play in the online business between the sellers and FCo or between the buyers and the sellers.
