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United StatesThe United States Tax Court heard a motion forsummary judgment from a taxpayer who was a residentof the US Virgin Islands and held an interestin a domestic partnership. The taxpayer filed his taxreturns with the Virgin Islands Revenue; howeverthe IRS argued years later that the partnership wasnot valid, that the taxpayer had failed to properlyidentify all sources of income, and that the returnsshould have been filed with the IRS.Because the taxpayer correctly filed his tax returnswith the Virgin Islands Revenue, despite the matterof income from the partnership being left unresolved,the Court granted his motion for a summaryjudgment against the tax adjustments, by reasonthat the notice was issued by the IRS more thanthree years after the properly filed tax returns andwas therefore invalid.The judgment was delivered on May 22, 2013.The IRS made adjustments to negate the tax benefitsthe taxpayer received from the Virgin Islands onaccount of the partnership; the taxpayer objectedand brought the motion before the Tax Court.The Court acknowledged that the success of thetaxpayer's motion depended on whether he properlyfiled the required returns with the Virgin IslandsRevenue, and that it was required under lawto assume that income from the partnership wasnot suitably recorded in the submitted returns.The IRS attempted to rely on case law and its ownnotices to argue that the taxpayer was considered aUS resident living abroad and was required to file atax return with them, but the Court disagreed entirelywith their interpretation of the law. It statedthat the taxpayer had no reason to consider himselfliving abroad, that the necessary returns filed withthe Virgin Islands Revenue mirrored the returns requiredby the IRS, and that their notices were publishedafter the taxpayer filed his returns and didnot have retroactive effect.http://www.ustaxcourt.gov/InOpHistoric/AppletonDivJacobs.TC.WPD.pdfTax Court: Arthur I. Appleton Jr. et al. v. Commissioner(140 T.C. No. 14)ASIA PACIFICIndiaThe Delhi High Court heard an appeal by the Revenueagainst the tax treatment of services providedby an India-based subsidiary of Digital Microwave(Mauritius) Ltd, which is itself a wholly-ownedsubsidiary of a US-based manufacturing company,Digital Microwave Corporation USA.The subsidiary was paid to supply warranty coverageon equipment sold by the US company to Indiancustomers, but it also independently provided installationand maintenance services for said equipment.The subsidiary calculated the arm's lengthprice of its international transactions with the UScompany, but the Transfer Pricing Officer insisted90
on including the profit from the domestic installationand maintenance services in the computationto "determine the profit level indicator."The Revenue argued that the domestic serviceswere "intricately connected" with the internationaltransactions; however the Tribunal drew the conclusionthat there was no connection, given that onlythree of the company's 40 customers had taken advantageof the subsidiary's installation services, andthat the Revenue had not recognised the domesticservices as part of the arm's length price.The High Court agreed with the Tribunal and confirmedthat the subsidiary's domestic services werenot international transactions due to the lack of involvementof the US company. As a result, therewas no discernable connection between these servicesand the services the subsidiary provided as internationaltransactions with the US company, andso the Revenue's appeal was dismissed.The judgment was delivered on May 6, 2013.http://lobis.nic.in/dhc/BDA/judgement/09-05-2013/BDA06052013ITA3532011.pdfpartners of which had occasionally provided servicesrelating to projects in India.The firm had no branches in India, but when CliffordChance representatives were in the country forlonger than 90 days, the Assessing Officer consideredthat this constituted a permanent establishment(PE) there.The assessee claimed that Clifford Chance employeesshould be subject to beneficial provisions containedin the UK-India DTA, and that thereforeonly services actually rendered in India should besubject to Indian tax; the Revenue claimed that (dueto the PE), all receipts relating to the Indian projectsshould be subject to income tax, and that furthermore,the DTA provisions (which related to the taxtreatment of fees paid to individuals) did not apply.The company appealed against the assessment,and the Commissioner of Income Tax (Appeals)(CIT(A)) agreed that there was no creation of a permanentestablishment, and that the company wasnot liable for tax in the years when their employeesspent less than 90 days in India. It based its decisionson an earlier Tribunal judgment.High Court: CIT v. Stratex Networks (India) PvtLtd (ITA 353/2011)IndiaThe Special Bench of the Mumbai Income TaxAppellate Tribunal was consulted during proceedingsconcerning a UK law firm, Clifford Chance,The Revenue then appealed to the Tribunal on thebasis that the previous Tribunal decision which benefitedthe company involved a law that had sincebeen amended with retroactive effect, which theRevenue insisted made all services received in Indiataxable regardless of where they were rendered.The company argued that the amendment did not91
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GLOBAL TAX WEEKLYa closer lookISSUE
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GLOBAL TAX WEEKLYa closer lookISSUE
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FEATURED ARTICLESISSUE 30 | JUNE 6,
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taxation treaties concluded by Swit
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UK, its offshore dependencies, and
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financing and all forms of financia
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Th e Government pointed out in part
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Talks are now underway. The TIEA wi
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through which they can clamber in o
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fi nally, and most egregiously, the
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office space, or own tangible asset
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extended for 2 years in December 20
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OECD Section E - Redraft On Safe Ha
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suggests that the following items m
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State Interest And IntangibleExpens
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