Interpretation of make available clause in the tax treaties – Part 1

There are various issues that arises when it comes to taxability of fess for technical services (FTS) and one such being the interpretation of make available clause in the tax treaties. The concept of ‘make available’ clause in the tax treaties means the person aquiring the services is equipped to apply the technology or technical knowledge or technical expertise contained therein in future.

Taxability as per Income tax Act, 1961 (ITA) –

Section 9(1)(vii)(b) of the ITA provides that FTS shall be deemed to accrue or arise in India where such FTS is payable by a resident. It may be noted that the condition of ‘make available’ doesnot exist in the provisions of ITA dealing with FTS.

Taxability as per Double tax avoidance agreement (DTAA) –

The defination of FTS (in some DTAA’s it is instead of FTS article there is Fees for included services article) is more restricted in DTAA where it requires satisfaction of ‘make available’ condition. India’s tax treaties with Australia, Canada, Cyprus, Malta, Netherlands , Singapore, US and USA contain the concept of make available concept. Many DTAA does not have make available clause but MFN clause can be invoked to import the concept of make available clause from other DTAA’s.

Where the DTAA contains the concept of make available, technology or technical knowledge or technical expertise should be ‘made available’ or parted/ provided or transferred by the service provider to the service recepient for use in the future.

Reference can be made to the judegement of Intertek Testing Services India (P.) Ltd. (In re [2008] 307 ITR 418 (AAR)).Conditiond to be satisfied for make available clause are –

  • Technical knowledge, skills, etc. must remain with the person receiving the services even after the agreement comes to an end
  • The technical knowledge or skills of the provider should be imparted to the recipient
  • The recipient should be in a position to deploy similar skills or technology or techniques in future without the aid or assistance of the service provider

DTAA’s generally does not define the meaning of make available clause. Only, Memorandum of Understanding appended to India-US DTAA provides for the detailed explanation of make available clause. Relevant extracts are reproduced below –

Generally speaking, technology will be considered “made available” when the person
acquiring the service is enabled to apply the technology. The fact that the provision of the service may require technical input by the person providing the service does not per se mean that technical knowledge, skills, etc., are made available to the person purchasing the service, within the meaning of paragraph 4(b). Similarly, the use of a product which embodies technology shall not per se be considered to make the technology available.”
(Emphasis supplied)

There has been controversies on the scope of application of Make available clause. The same shall be discussed in next part.


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