TAX MATTERS - India-Norway tax treaty version 2.0

On February 2, 2011, the Indian Government signed a new tax treaty with Norway, amending the old India-Norway tax treaty. Further to the amendment, the Government issued a notification, which takes effect from April 1. The new treaty, inter alia, has removed the Most Favoured Nations (MFN) clause. As a result, non-residents cannot benefit from the other tax treaties India has with other countries. Further, an Insurance Permanent Establishment (PE) clause has been included in the tax treaty. The scope of dividend has also been expanded to include income, which is treated as dividend under the domestic laws of the country where the distributing company is resident.

Centre goes soft on software

The Central Board of Direct Taxes recently issued a notification which provided that no tax shall be deducted on payment to a transferor, who is a resident, by the transferee for acquisition of software, where:

The software is acquired in a subsequent transfer and the transferor has transferred it without modification;

Tax has been deducted Under Section 194J on payment for any previous transfer of such software; or

Under Section 195 on payment for any previous transfer of such software from a non-resident; and

The transferee submits a declaration from the transferor that tax has been deducted either under the above-mentioned sub-clauses of the second clause, along with the Permanent Account Number of the transferor.

These changes will help domestic software companies avoid multiple levels of tax deduction at source.

Sweet recipe for tax revenue

The Central Board of Excise and Customs, superseding a previous notification dated March 17, has notified amendments to be made under the Service Tax (Determination of Value) Rules, 2006 for the negative list regime.

Some of the key amendments are:

In the case of composite works contracts for maintenance or repair of goods, value for Service Tax has been increased from 60 per cent to 70 per cent of the contract value. Accordingly, 30 per cent of the contract value would not attract Service Tax;

In cases where Service Tax is payable as a percentage of ‘total amount’ charged for works contract/ supply of food or drinks in restaurants/ outdoor catering, the fair market value of the goods or services supplied free or otherwise is required to be computed according to the Generally Accepted Accounting Principles (GAAP).

Restriction relating to CENVAT credit of inputs for works contract has been extended not only to disallow credit of excise duty but also other duties and cess (such as CVD, education cess, secondary education cess and so on). This change, which corrects the apparent anomaly, is on expected lines;

Earlier notification provided for payment of Service Tax on 25 per cent in the case of ‘original works’ for works contract where the ‘gross amount charged’ included value of land. However, this notification has not dealt with such transactions.

The anomaly with respect to interest on deposits has now been rectified, as it has been removed from the exclusion clause of the value of taxable service. Further, subsidies and grants disbursed by the Government which do not directly affect value of service are not to be included in the value of taxable service.

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