Nike wins tax case at B'lore IT Appellate Tribunal
June, 16th 2008
Nike wins a tax case at the Bangalore Income Tax Appellate Tribunal. The Bangalore ITAT (Income Tax Appellate Tribunal) has ruled in favour of Nike. The sportswear company has an RBI permitted Liaison office in India that coordinates between Nike, its Indian suppliers and its affiliate companies across the world. The tax department held that the Nike Liaison Office carries out income generating activities in India and attributed 11.37% of Nikes global income to tax in India.
The Commissioner of Income Tax Appeals agreed with the taxability but reduced the income attribution to 5%. Nike appealed to the ITAT arguing that the Liaison Office only carried out purchase function and that too for the purpose of export, an activity that is exempt under CBDT circular. The Tribunal ruled that all services provided by Nikes Liaison Office are rendered for purchase of export and no income is earned in India. Thereby ruling out the levy of any tax.
Details are finally out on the India-Luxembourg Double Tax Avoidance Treaty. The DTAA will cover in India, income tax and wealth tax including any surcharge thereon.
In Luxembourg, income tax on individuals, corporation tax, capital tax or communal trade tax. Dividend, interest, royalties and fees for technical services will be taxed in the source country at not more than 10% of the gross amount.
Capital gains on sales of shares of a company will be taxable in the country where the company is a resident. Each country will allow for tax credit on taxes paid by the resident in other countries. The treaty provides for limitation of benefits to prevent treaty misuse.