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MasterCard Interface Processor constitutes PE; fees for processing card payments taxable as business income

June 13, 2018[2018] 94 taxmann.com 195 (AAR - NewDelhi)
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IT/ILT : Where Applicant MasterCard Asia Pacific is a Singapore based company engaged in processing of electronic payment transactions has an Indian subsidiary which owns and maintains MasterCard Interface Processor placed at Customers' locations in India, a part of fees received/to be received by Applicant from Indian Customers would be classified as royalty; however, since it is effectively connected to PE, it would be taxed under Article 7 and not under Article 12

• Applicant MasterCard Asia Pacific is a Singapore based company engaged in processing of electronic payment transactions. Customers are provided with a MasterCard Interface Processor (MIP) that connects to MasterCard's Network and processing centers. Indian subsidiary owns and maintains MlPs placed at Customers' locations in India.

Ruled, that:

(1)   Applicant has a PE in India under provisions of Article 5 of India Singapore DTAA in respect of services rendered/to be rendered with regard to use of a global network and infrastructure to process card payment transactions for Customers in India. There is fixed place PE, service PE and dependent agent PE.
(2)   Arm's length remuneration to PE on account of Indian Subsidiary for activities performed/to be performed in India, would not absolve Applicant from any further attribution of its global profits in India since FAR of Indian Subsidiary does not reflect functions/risks of Applicant performed/undertaken by it.
(3)   A part offees received/to be received by Applicant from Indian Customers (comprising transaction processing fees, assessment fees and transaction related miscellaneous fees) would be classified as royalty within meaning of term in Article 12 of India- Singapore DTAA. However, since it is effectively connected to PE, it would be taxed under Article 7 and not under Article 12.Fee cannot be classified as FTS under Article 12 of India-Singapore DTAA.
(4)   Tax withholding at source would be required on amount to be received by applicant at full applicable rate at which non-resident is subjected to tax in India.
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