This document presents a detailed discussion on the Income Tax Appellate Tribunal’s ruling regarding Radisson Hotel International Incorporated’s franchise services in India, scrutinized under the Double Taxation Avoidance Agreement (DTAA) between India and the USA for the assessment year 2018-19.
Radisson Hotel International, a USA-based entity, has appealed against the final assessment orders pertaining to the taxation of fees received from Indian franchise hotels for centralized services. These fees were examined whether they fall under fees for technical services (FTS) or fees for included services (FIS) as per Article 12(4)(a) of the India-USA DTAA.
The core legal issue revolves around the classification of the fees received from Indian franchises. Specifically, whether the income derived from providing centralized services to maintain uniform hospitality standards can be categorized as FTS/FIS under the DTAA provisions.
The Tribunal examined the nature of the services provided by Radisson under the licensing agreements with Indian hotels, which include marketing, reservation services, and loyalty programs among others. Despite the revenue authority’s classification of these payments as FIS, Radisson argued that these services do not qualify as FTS/FIS under the DTAA, claiming they should be treated as business income exempt from taxation in India due to lack of permanent establishment.
The Tribunal, referencing decisions from previous similar cases, including those of other hotel chains, supported Radisson’s position. It highlighted precedents where the nature of such services was ruled not to fall under FTS/FIS, emphasizing the need to assess whether the services were ‘made available’ as defined under the treaty, a key criterion that was not met.
The ruling favored Radisson, stating that the fees for centralized services are not taxable as FIS under the India-USA DTAA, thus classifying them as business income. This decision underscores the Tribunal’s consistent approach in interpreting treaty provisions concerning the taxation of international franchise operations.
Taxation of Radisson Hotel’s Franchise Services under India-USA DTAA for AY 2018-19
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