CA. Aman Garg & Anshi Bhatia – [2025] 177 taxmann.com 454 (Article)
Rise of Cross-Border Technical and Consultancy Services
In today’s digitalized and service-driven global economy, the cross-border provision of technical, consultancy, and managerial services has become a major driver of international value creation. These services are often delivered seamlessly through digital platforms or remote engagements, allowing businesses to transcend geographical barriers. However, while operational delivery is increasingly efficient, the taxation of such services presents significant challenges for governments and taxpayers alike.
Taxation Dilemma in Cross-Border Transactions
The key issue in taxing these cross-border services is determining the rightful allocation of taxing rights between the residence country (where the service provider is located) and the source country (where the service recipient operates). This conflict is most visible in the treatment of Fees for Technical Services (FTS), which continues to be one of the most debated categories of cross-border income.
India’s Domestic Law Approach
Under Indian domestic tax law, the scope of FTS taxation is intentionally broad. Payments for technical or consultancy services, even when rendered outside India, are often deemed to accrue or arise in India if the payer is located in India or the services are utilized in India. This deeming fiction significantly expands India’s domestic tax net, ensuring that many cross-border transactions attract tax liability within India.
Treaty Provisions and the “Make Available” Test
In practice, however, India’s wide domestic reach is frequently restricted by its bilateral tax treaties. Many treaties impose narrower definitions of FTS, with some requiring that services must “make available” technical knowledge, experience, or skill to the recipient for taxation to apply. Others exclude a separate FTS article altogether, meaning such income is instead taxed as business profits, but only if the foreign service provider has a permanent establishment (PE) in India. This treaty override often leads to reduced or even nil tax liability compared to domestic law.
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