Tax tribunal in India rules database access fees as royalty – implications for US companies

In the case, the taxpayer (ONGC) was an Indian resident company engaged in the exploration and development of natural oil and gas. ONGC subscribed to an online database maintained by Wood MacKenzie (WM), a U.K. resident company. The subscription, which provided information on the global oil and gas industry, required ONGC to pay a fee to WM in exchange for a license agreement that provided for an exclusive and non-transferable right to access and download information from the site. No right to sublicense was granted to ONGC under the license agreement and the use of the information was limited to what was specified in the agreement. The website was only accessible by select ONGC employees and WM provided two days of training per year to 20 ONGC employees on technical issues related to oil and gas exploration.

The Indian Income tax Appellate Tribunal ruled that the fees paid by ONCG are properly characterized as royalties, for Indian tax purposes, under both Indian domestic law and the India-UK double taxation treaty. It was therefore subject to the applicable withholding tax according to the treaty.

Number of U.S. based companies provide the database subscriptions services to the users in India. They should closely study amd monitor the case as this may have deep implications for them.

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