Taxation of Software for Foreign Companies

Abstract

Increased globalization has resulted in an incessant transfer of technology from foreign entities to India. The increasing focus on service industry has augmented in a broader attention to Intellectual Property Rights transfers across borders. What this paper addresses; Is how Intellectual Property transfer determines the levy of tax on a Foreign Company. Several disputes have thrusted after the Income tax amendment that defines royalty as consideration paid for mere use of computer software’s as oppose to, transfer of rights in the computer software. The definition given my IT Act lies in direct contradiction to the restrictive interpretation of taxable royalty in various DTAA i.e. Consideration will be royalty only when a right is a transferred for the use of software. The paper will address this contrasting approach in light of various judicial decisions and would attempt to conclude this underlying ambiguity, on which interpretation would be applicable to a foreign company transferring technology in India.