India’s Supreme Court today ruled that software payments made by Indian end-users or distributors and resellers to overseas software suppliers are payments for sales, not royalties, and are therefore not subject to withholding tax under applicable tax treaties. The case resolves an almost 20-year dispute between India’s tax authority and multiple plaintiffs.
The court found the OECD Commentary on Article 12 of the OECD Model Tax Convention persuasive as to the interpretation of the term “royalties” in tax treaties.
MNE Tax will publish an analysis of this 226-page decision written by experts shortly.
Interesting given the UN’s current initiative to have Article 12 amended to include software payments under the definition of royalties!
Graham – not all software offerings are the same. This Supreme Court decision is addressing very specific situations including the sale of shrink wrap software.