withholding tax on foreign remitance

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X company limited, a resident of india enters into a mutual marketing agreement with y company a resident of china. as per agreement both the companies share 50% of the total cost of marketing incurred in china. for this purpose chinese company initially pays the marketing guys salary, their travel expenses, incentives and claims 50% from indian couterpart. Whether the reimbursement of the marketing expenses attract tds provisions? whether such expenses will be treated as fees for technical services or other income as per DTAA with China.

Vinod.

Replies (4)

Dear Sir,

I think -

TDS will not be deducted in this case because "marketing is to be done in China" and this is outside the purview of Sec 9 to treat it as "Income deemed to accrue or arise in india"

Secondly as far as reimbursements goes -

Reimbursement of cost incurred by payee is not subject to tax deduction - To apply section 195, amount in question should be income of payee and not a mere reimbursement of cost incurred by payee - Danfoss Industries (P.) Ltd., In re [2004] 138 Taxman 280 (AAR - New Delhi).

Amir,

 

I agree with you on your view but 15CA & CB compliance will have to be met, correct me if wrong

hi nicky

 

15CA and 15CB has necessarily to be filed for all foreign remitances whether they attract tds or not. ofcourse, the reasons for non deduction are to be mentioned in the said forms, only then the authorised dealers shall execute the remitances.

 

For the purposes of DTAA, the term “permanent establishment” means a fixed place of business through which the business of an enterprise is wholly or partly carried on "permanent establishment” includes the furnishing of services other than technical services as defined in Article 12 (Royalties and Fees for Technical Services), by an enterprise of a Contracting State through employees or other personnel in the other Contracting State, but only if activities of that nature continue within that other Contracting State for a period or periods aggregating more than 183 days.(relevant extract)

If once the Permanent establishment is established as per agreement then parties of contracting states is regulated as per the terms of DTAA of India with China

In your case DTAA With China shall not apply and accordingly your payment by way of reimbursement shall not covered under fees for technical services



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