NO TAX ON FOREIGN TELCOS FOR CARRYING CALLS ABROAD: AUTHORITY FOR ADVANCE RULING (AAR)

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FOREIGN telecom firms operating without a permanent establishment in India are no more required to pay any tax on income from carrying international calls and data services in pacts with domestic operators.

Giving a ruling on an application from Cable & Wireless Networks India which proposed to enter a pact with the UK arm of the same parent company, the Authority for Advance Ruling (AAR) said, “in the absence of there being any permanent establishment of C&W UK In India, this income is not at all taxable here.”

Cable and Wireless UK would earn an income from carrying those calls and data carried by the Indian arm within the country to recipients abroad. This income, according to the AAR, is not taxable in India. “Since this income is not chargeable to tax under the (income tax) Act, there is no question of making any deduction at source,” said the ruling.

Cable and Wireless Networks India has sought AAR’s ruling before starting the business on the issues of taxability of the income earned by the foreign firm.

The Indian firms are responsible to deduct a tax at source for the payments made to a foreign firm. The Indian company had asked if the income earned by the UK firm will be taxable as royalty or fees for technical services.

The AAR ruling brings good news to those foreign telecom firms which have plans to enter into similar pacts with Indian companies. The ruling from AAR is binding only on those who seek it a judgements on taxation matters relating to foreign firms’ income but it sets a persuasive precedent for other firms engaging in similar activities.

While ruling in favour of the foreign firm AAR said that the Indian company has said there would be no personal staff deputed by the company in India so that would also not lead to setting an establishment like technical staff in India.

Under the proposed contract between the two companies, network and equipment of C&W UK will not be used in India and that of Indian company not used outside India.

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