In a judgment which could have a bearing on the activities of multinational companies in India, the Authority for Advance Ruling (AAR) has decided that the International Hotel Licensing Company, which markets the Marriott brand, will have to pay tax on fee income received from its Indian partner.

The company's Luxembourg-based parent International Hotel Licensing Company Investments argued that the income earned by its subsidiary is the result of its global advertising, marketing and sales programme and it is not liable to pay tax in India.

In 2005, different Marriott group entities entered into various agreements with Unitech Hospitality, an Indian company, for a hotel in Noida in Uttar Pradesh.

In September 2005, International Hotel Licensing entered into an ‘international marketing programme participation agreement' with the Unitech group. The agreement provides that overseas marketing and business promotion (co-ordinating global marketing activities) of Marriott will be carried out by International Hotel Licensing which will get an annual contribution of 1.5% of the gross revenues of the hotel and 3.4% of members gross room revenues.

Considering that International Hotel Licensing is getting a fixed revenue from Unitech and the the agreement is valid for 25 years (with further extension of 10 years), AAR has ruled that a business connection is established between Unitech and International Hotel Licensing.

Since there is no double taxation avoidance agreement between India and Grand Duchy of Luxemborg, the tax liability of International Hotel Licensing is decided as per Indian income tax laws.