India - US intergovernmental agreement on FATCA

India's avidity for exchange of information

In this era of digitalisation where the world has become a global village and distances are no longer a challenge, flow of capital has become easier and faster. Albeit, this globalisation fuelled by technological advancement has led to seamless transfer of goods, services, money and man, the same has also stimulated international tax evasion and avoidance, in particular through tax havens and non-co-operative jurisdictions.

Where the world has recently witnessed the illegitimate stashing of money in foreign jurisdictions and banking scandals, co-operation between tax administrations of different sovereigns has been considered to be critical in this fight against tax-evasion and in protecting the integrity of tax systems.

A key aspect of such co-operation shall be the effective and seamless exchange ofinformation ('EOI'), between the jurisdictions, to curb the practice of tax evasion followed by taxpayers around world.

The 1998 OECD report 'Harmful Tax Competition: An Emerging Global Issue'¹ identified the lack of effective exchange information as one of the key characteristics of harmful tax practices and recommended member countries to remove impediments to the access of bank information.

Sum received by UK based Co. for allowing Indian telecom operators to use its Virtual Voice Network wasn’t FTS

Facts

a)    Assessee (Interroute Communications Ltd.), a UK based Company, was engaged in the business of providing international telecommunication network connectivity to various telecom operators around the world.

b)    It entered into an agreement with the Indian telecom operators, viz., Vodafone Essar South Limited and Tata Telecommunications Ltd to allow them to use its Virtual Voice Network (VVN), i.e., a facility used to connect the call to the end-operators.

c)    Assessee contended that sum received by it under the aforesaid agreement was in nature of business income and should not be taxable in India in absence of its permanent establishment in India.

d)    Assessing Officer (AO) opined that the payment received by the assessee for allowing Indian telecom operators to use its VVN should be taxable as royalty or FTS as per Article 13 of the India-UK Double Taxation Avoidance Agreement (DTAA).

e)    The CIT(A) confirmed the order of the AO. Aggrieved assessee filed the instant appeal before the tribunal.