Court Case Catch-Up
Kitty Miv, Editor
18 March, 2021
Last week we looked at the United Kingdom, more specifically at the measures announced in the first post-Brexit Budget. This week we will be both broadening and narrowing our focus, looking at several recently delivered tax rulings and decisions, and their implications.
We start in India, where the Supreme Court has released a landmark ruling to finally settle years of litigation on the tax rules for cross-border sales of software to the Indian market.
The ruling, delivered in the case of Engineering Analysis Centre of Excellence v. the Commissioner of Income Tax grouped numerous taxpayers' appeals, all contesting the Indian authorities' assertion that income received by non-resident suppliers from the sale of software in India should be taxable as royalties.
Instead, the Supreme Court sided with the appellants' argument that software transactions should be treated as sales, not the provision of the right to use software, and as such should be treated as business income, not as royalties, for the purposes of India's tax treaties and domestic tax withholding rules.
The Supreme Court, after analyzing the text of Article 12 in various Indian tax treaties, concluded that this applies equally to cross-border sales to end users, to distributors or resellers, and to software provided alongside hardware.
Speaking of epic tax disputes, the United States and the European Union have agreed to put the ongoing dispute between the two sides over support for their respective aircraft industries on the back burner for the moment, suspending all retaliatory tariffs on each other's exports imposed in the Airbus and Boeing disputes for four months.
The suspension will cover all tariffs on both aircraft and non-aircraft products. It will become effective as soon as the internal procedures on both sides are completed.
In a joint statement the EU and the US explained that the decision "will allow the EU and the US to ease the burden on their industries and workers and focus efforts towards resolving these long running disputes at the WTO."
And in another decision with significant European tax implications, the European Court of Justice has recently issued another landmark ruling on the VAT treatment of intra-group services, between a headquarter company and its branch, following the court's rulings in Skandia and FCE Bank.
The ruling in Danske Bank A/S v. Skatteverket (Case C-812/19) was released on March 11, 2021. The ECJ ruled that: "Article 9(1) and Article 11 of [the EU VAT Directive] must be interpreted as meaning that, for value added tax (VAT) purposes, the principal establishment of a company, situated in a Member State and forming part of a VAT group formed on the basis of Article 11, and the branch of that company, established in another Member State, must be regarded as separate taxable persons where that principal establishment provides that branch with services and imputes the costs thereof to the branch."
Notably, this case differs from the circumstances in Skandia, which involved a branch that was a member of a VAT group. In Danske Bank, it is the principal establishment, based in Denmark, that is party to a VAT group, not its branch, based in Sweden. However, the outcome was the same; the Court ruled that the parties are separate taxable persons with the result that the transaction should be subject to VAT.
Until next week!
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