CONSULTANCY & TECHNOLOGY TRANSFER: TAX

PERSPECTIVE

DHANYA N. MENON ALTACIT GLOBAL

http://www.dvd-ppt-slideshow.com

WHAT IS TECHNOLOGY TRANSFER?

• process of sharing of skills, knowledge, technologies, methods of manufacturing, samples of manufacturing and facilities

• among governments and other institutions • to ensure that scientific and technological

developments are accessible to a wider range of users

• who can then further develop and exploit the technology into new products, processes, applications, materials or services

FUNCTION

• Coordinate

• Nurture

• Link

INCLUDES:• processing and evaluating invention

disclosures

• technology marketing

• Licensing

• protecting intellectual property arising from research activity

• assisting in creating new businesses

• Tax issues arise in International Technology Transfer (ITT)

• Three major players:- Home Country: Technology

Exporting Country

- Host Country: Technology Importing Country

- Multi National Companies

TAX ISSUES

MULTINATIONAL FIRMS, TAXATION & TT

• Methods of providing new technologies to the country in which they invest:

1. developing new technologies locally2. Import technology

• The R & D expenditure is liable to tax with some deductions

• Income arising to non-residents (including foreign companies), directly or indirectly from a business connection, from any property in India, or transfer of a capital asset situated in India, would be subject to tax in India.

TAX POLICIES AND TT• Affects:

1. Increases the cost of actual transfer2. reduces the subsequent return to

the transferor• Falls under:

business profits, fees for services, rents and royalties, dividends and capital gains, and employees’ salaries

• Royalty: consideration for transfer of rights in respect of or for use of intellectual property

• Taxable in the hands of non-residents if the same are received in or accrued in India.

• Fees for technical services: any consideration for the rendering of any managerial, technical or consultancy services

• Taxable in the hand  of non-residents if the same is received in India or it accrues in India.

• Payment of royalty abroad for use of a trademark in India will result in taxes in India

• all incomes accruing or arising, whether directly or indirectly, through the transfer of a capital asset situated in India is liable to Income-tax.

• intangible assets like trademarks, brand-names etc shall be taken as located in India if they are used in India.

• Their place of registration in this context is not material.

NOTIFICATION 18/2002 – SERVICE TAX

taxable services provided by a consulting engineer to a client on transfer of technology are exempted from service tax to the extent of the amount of cess paid on the said transfer of technology

• The Service Tax is leviable only on the taxable services supplied within India

• taxable services exported outside India are not leviable to service tax and therefore, exempt.

• a Management Consultant or a Consulting Engineer provides the consultancy service to a foreign company situated outside India, it will constitute direct export.

Indian Farmers Fertilizer Co-Operative Ltd. vsCommissioner Of Central Excise on 26/12/2006IFFO obtained license to use of Topsoe’s technology forredesigning and modifying the operation of its ammoniaand urea plants at U.P. to make the plants more energyefficient- tax payable in India-transaction was one fortransfer of know-how/intellectual property which couldbe sold or licensed and not a service-purchase ofimported goods-technical assistance was incidentalContented: technical assistance was meant to be providedat the plants situated in India-transfer of know –technicalassistance was not subsumed within the know-how

Neither was the transaction completely one for transfer of know-how nor was it entirely for provision of services. It was for both; also, the agreements envisaged two separate methods of payment for each of the components. Therefore, since only a portion of the outstanding tax liability of Rs.14.5 lakhs was for technical assistance, only such portion could be recovered from IFFCO.