Referral fees held not liable to tax

In its first judicial examination of taxability of ‘referral fees’ in India, the Authority for Advance Ruling (AAR) has held that ‘referral fees’ received by Cushman & Wakefield, a Singapore resident company, is not liable to tax in absence of a permanent establishment in India. The AAR has held that such payments cannot be characterised as ‘royalty’ under the provisions of Indian Income tax Act and India-Singapore tax treaty and hence can not be subject to withholding tax liability in India. Under the Indian law, a non-resident foreign company is liable to Indian tax on source-based rules, which tend to be interpreted in a strict manner. Under such source rules, either the income is characterised as business income or fees for technical services. In the case of former, the presence of a permanent establishment is precondition to levy tax on such income. Cushman & Wakefield Pte Ltd (C&W), a company incorporated and based in Singapore, offers a range of real estate services to domestic and international clients. Over the years, C&W had developed international client relationships and in accordance with the group’s global policy, it provides referral services to other C&W offices. In 2005, C&W entered into a referral service agreement with its group’s Indian subsidiary, C&W India, by virtue of which C&W agreed to refer/ recommend potential clients, desirous of seeking real estate consultancy services in India. In consideration, C&W India was required to pay 30 per cent of gross fees to C&W as referral fees.

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