Article 14 Independent Personal Services

What is covered under Article 14 Independent Personal Services

Article 7 –  Activities falling under Article 14 are specifically covered there and not under Article 7

Exception : –

If an activity is carried on as a commercial activity – Clifford Chance, UK v. DCIT

Article 15  –  Covers services rendered by employees which are excluded from Article 14.

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Taxation of a teacher – Difference Capacities

Teacher

• Independent services as an individual – Article-14
• Salaried employment – Article-15
• Payment by Government –  Article-19

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Applicability of Article 14 Independent Personal Services?

Applicability

• Company
• Firm
• Individual

Application of article 14 to non individuals

Treaty with – USA

Clause – Income derived by a person who is an individual or firm of individuals (other than a company) who is a resident of a Contracting State…

Remarks – Article 15(1) clearly states that it does not apply to a company.

Treaty with – Germany

Clause – Income derived by an individual who is a resident of a Contracting State…

Remarks – Article 15(1) clearly states that it does not apply to non individuals.

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Application of article 14 to non individuals

Treaty with – UK

Clause – Income derived by an individual, whether in his own capacity or as a member of a partnership, who is a resident of a Contracting State…

Remarks – 

Linklaters LLP v ITO – Article 15 applies only to individuals and not to partnership firms. (ITAT)

Clifford Chance v DCIT – Article 15 applies to a partnership firm.

MSEB v DCIT – The Mumbai Tribunal applied Article 15 of India-UK Tax Treaty, to a UK partnership firm and supported its decision of applying Article 15 to “non individuals”.

DIT v Paper Products Ltd – Article 14 was applied to a company.

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Payments to FCO in respect of the furnishing the activities of Independent contractor

Fact: ICO made payments to FCO in respect of the furnishing the activities of Independent contractor.

FCO paid remuneration to the Independent contractor for performing the activities for ICO.

Issue: Whether Article 14 shall be applied for payments made by ICO to FCO?

Held: Payments made to an FCO in respect of the furnishing activities of Independent contractor shall be covered under Articles 7 read with Article-5.

The remuneration paid by the FCO to the independent contractor who performed the activities shall be covered under Article 14.

Fixed Base – Protocol to the india belarus treaty

For purposes of this Agreement, it is understood that the term “fixed base”

includes a fixed place such as

an office

or a room

or any other place

regularly available to him

through which the activity of a person performing independent personal services

is wholly or partly carried on.

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Fixed Base

• Is it similar to PE ? – Generally not defined but PE analogy can be applied
• Should it be occasional ? – No, it should be regularly available (at the disposal of) to the IPS provider
• What characterises fixed base ? – Place from which an IPS provider can provide his services — Key centre of activities in Source State
• Who has the right to tax ? – Source State has the right to tax income attributable to fixed base

Examples of fixed base – Inclusion Or Exclusion

Fixed base:-

(A) Inclusion

(B) Exclusion

(A) Inclusion:- 

• Painter’s office
• Teacher’s Institute
• Chambers of a Solicitor

(B) Exclusion:-

• Foreign doctor visiting various hospitals on demand once a year
• Foreign advisors attending Indian board meeting

Article 15(2) – India – USA treaty

The term “professional services” includes

independent scientific, literary, artistic, educational or teaching activities

as well as the

independent activities of physicians, surgeons, lawyers, engineers, architects, dentists and accountants.

Article 15(2) – India – USA treaty – Independent Activities

Covers:-

Independent activities

• Scientific
• Literary
• Artistic
• Educational/ Teaching

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Article 15(2) – India – USA treaty – Independent Activities of

Covers:-

Independent activities of

• Physicians
• Surgeons
• Lawyers  –  Tax, Corporates lawyers
• Engineers – For erection/ assembly/ drawing
• Architects – Including Painter/ Sculpture
• Dentists
• Accountants – Auditors

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What is not covered in article 14 ?

• Income from industrial activities
• Income from commercial activities
• Salary payments covered under Article 15 (Dependent Personal Services)
• Independent activities covered under specific provisions of Article 16 (non-employee director) and Article 17 (Artistes and Sportsmen)
• Payments to an enterprise in respect of rendering services of employees or other personnel