Article 15 Vs Article 14
Mr. X’s remuneration from 01-04-14 to 30-09-15 shall be taxable in ?
Remuneration which is received from India for the period 1/10/15 to 31/3/2016 shall be taxable in ?
Mr. Y provided Independent Personal Services to ICO – These shall be taxable under which Article ?
Dependent vs independent Personal Services
While both are Personal Services
- Dependent Personal Services covers Employment cases
- Independent Personal services covers services of professional
Salary deemed to accrue or arise in India – Section 9(1)(II) of the Act
Income which falls under the head “Salaries”, if it is earned in India.
Explanation.—For the removal of doubts, it is hereby declared that the income of the nature referred to in this clause payable for —
a)service rendered in India; and
b)the rest period or leave period which is preceded and succeeded by services rendered in India and
forms part of the service contract of employment, shall be regarded as income earned in India.
Exemption for Salary earned by a foreign citizen – Section 10(6)(vi)
remuneration received by him as an employee of a foreign enterprise for services rendered by him during his stay in India, provided the following conditions are fulfilled —
a.the foreign enterprise is not engaged in any trade or business in India ;
b.his stay in India does not exceed in the aggregate a period of ninety days in such previous year ; and
c.such remuneration is not liable to be deducted from the income of the employer chargeable under this Act ;
Exemption for Salary earned by a foreign citizen for services in India – Short stay exemption
- Foreign citizen is employed by a foreign enterprise.
- His aggregate stay in India is not greater than 90 days during P.Y.
- Foreign enterprise is not engaged in any trade or business in India
- Remuneration paid to Foreign company not liable to be deducted from the income of employer chargeable under the IT Act
Article 15 (1) of the India US Treaty
Subject to the provisions of Articles 17 (Directors’ Fees), 18 (Income Earned by Entertainers and Athletes), 19 (Remuneration and Pensions in respect of Government Service), 20 (Private Pensions, Annuities, Alimony and Child Support), 21 (Payments received by Students and Apprentices) and 22 (Payments received by Professors, Teachers and Research Scholars),
salaries, wages and other similar remuneration
derived by a resident of a Contracting State
in respect of an employment shall be taxable only in that State
unless the employment is exercised in the other Contracting State.
If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other State
Article 15(1) – key characteristics
What income are specifically excluded ? – Article 17 to Article 22 income are specifically excluded
What is covered ? – Salaries, wages and other similar remuneration
What is remuneration in respect of ? – Remuneration derived in respect of an employment
When is it taxable in Source State as well ? – Employment is exercised in the other Contracting State
- What payments are covered within Article 15 ?
- What are Rights of India/ Treaty partner to tax income covered under this Article ?
- Who is Employer ?
Salaries, wages & other similar remuneration
Generally, term is not defined in Treaty
Meaning under laws of country, where employment is exercised can be used
Benefits in Kind / Perquisites are covered
- Residential accommodation and vehicle
- Insurance – Medical / Life
- Club membership (Health/Others)
- Stock options
Place of Exercise
Different stages of Stock Option
Stock Option – Value increase taxable as Salary
(A) Exercised – Vesting irrevocably
(B) Exercise – Can be revoked by the company
(A) Exercised – Vesting irrevocably:-
Benefit derived until exercised, is taxable under DPS
(B) Exercise – Can be revoked by the company:-
Increase in the value until the period, when the right is irrevocable
Factors not affecting the taxation of ESOP
- When the benefit is taxed
- Nature of Benefit e.g. Capital Gain or Employment Benefit
- Whether the employee is employed after exercise of option
- Amount of Benefit
Employment exercised in several countries
Mr. X rendered services in
Where would remuneration be taxed?
Remuneration has to be allocated to these countries according to the time spent over there.
Bonus for services rendered & stock option exercise post leaving
Which date is important for taxing stock options
Article 15 (2) of the India us treaty
Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned State, if :
a) the recipient is present in the other State for a period or periods not exceeding in the aggregate 183 days in the relevant taxable year ;
b) the remuneration is paid by, or on behalf of, an employer who is not a resident of the other State ; and
c) the remuneration is not borne by a permanent establishment or a fixed base or a trade or business which the employer has in the other State.
Analysis of Conditions for Article 15 (2)
- Where should the employment be exercised – Employment exercised in the other Contracting State
- Time period of exercise of employment – Periods not exceeding in the aggregate 183 days
- Who should the Employer be ? – Employer is a resident of other State
- Should remuneration be paid/ accrued – Paid – Economic Burden
- What if the PE bears remuneration – No exemption provided to the Employee
Period during relevant taxable year – variations
- Relevant Taxable Year
- 183 days in 12 month period
- Previous Year
- Fiscal Year – Source State
Days included to compute 183 days
b) National Holidays
c) Short Break
d) Medical leaves
e) Family reasons and leaves thereof
c) Short Break
Paid “by or on behalf”
Meaning of Employer
- Interpreted in accordance with the domestic law of the country that applies the convention
- Having regard to the nature of the work, control and supervision by the employer
- Employer tell employees what to do and how to do it.
Borne by PE
- Considered as an expense in determining profits attributable to PE
- Deductible/ Deducted for tax purposes
- Economic burden on PE
- Bears the Commercial liability
Article 15 (3) of the India us treaty
Notwithstanding the preceding provisions of this Article,
in respect of an employment exercised aboard a ship or aircraft operating in international traffic by an enterprise of a Contracting State
may be taxed in that State.
44 taxmann.com 300, Centrica India Offshore p Ltd.
Weather reimbursed amount by Centrica India Pvt. Ltd. To overseas companies towards salaries of seconded employees amounted to FTS Art- 12 liable to tax in India.
International Taxation – Interpreting Tax Treaty (DTAA) Notes
Article 2 – Taxes Covered
Article 4 – Concept of Residence in Tax Treaties
Article 5 – Permanent Establishment
Article 6 – Income From Immovable Property
Article 7 – Business Profits
Article 8 – Shipping & Air Transport
Article 9 – Associated Enterprise
Article 10 – Dividend
Article 11 – Interest
Article 12 – Taxation of Royalties and Fee for Technical Services
Article 13 – Capital Gains
Article 14 – Independent Personal Services
Article 16 – Directors Fees
Article 17 – Artistes and Sportspersons
Article 18 – Pension and Other Social Security Payments
Article 19 – Government Services
Article 20 – Students
Article 21 – Other Income
Article 23 – Elimination of Double Taxation
Article 24 – Non-Discrimination & Article 25 – Mutual Agreement Procedure (MAP)
Article 26 – Exchange of information
Artilce 27 – Assistance in the collection of taxes
Article 28 – Member of Diplomatic Mission and Consular Posts
Article 29 – Entry into Force
Article 30 – Termination