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No Permanent Establishment in Ebay International Case

Written By Admin on Friday, 5 October 2012 | Friday, October 05, 2012

eBay International AG, a Swiss tax resident, need not fork out any income-tax on the profits earned from its two India-specific Web sites, the Mumbai Income-Tax Appellate Tribunal has ruled. 

The ruling is significant in the context of e-commerce transactions, say tax experts. The tribunal ruled that the fees received from customers for use of an online platform cannot be characterised as fees for technical services (FTS) under income-tax law. Such fees are in the nature of ‘business profits’, it said.
The tribunal concluded that eBay International had no permanent establishment (PE) in India and, therefore, the ‘business profits’ earned here were not taxable.

eBay International operates two India-specific Web sites which provide an online platform to facilitate the purchase and sale of goods and services to users in India. Both are operated from outside India.
The e-tailer earned revenues from the sellers of goods who were required to pay a user fee on every successful sale on the Web site. It had engaged its Indian affiliates — eBay India and eBay Motors — for getting certain support services in connection with the Web sites for which it had entered into a marketing support agreement. The affiliates collect the user fee and remit it abroad to eBay International.

Both eBay International and the Indian tax authority had filed an appeal before the Mumbai Tribunal raising two issues: One, whether the user fee from sellers in India would be in the nature of fees for FTS under the income-tax law. And, two, whether the Indian affiliates constituted PE for eBay International under the India-Switzerland double taxation avoidance agreement.

Upholds classification

The tribunal ruled that the consideration received by eBay International did not fall within the FTS definition under the income-tax law and upheld the classification of income as “business profits”. 

On PE under the DTAA, it held that the Indian affiliates were “dependent agents” of eBay International, as they were legally and economically dependent on the taxpayer (eBay International). But they do not constitute a PE for eBay International as they do not have an authority to conclude contracts on behalf of the Swiss tax resident.

Also, the Indian affiliates do not constitute a PE under the “place of management” clause because they perform only market support services for eBay International and have no role to play in the online business between sellers, buyers and eBay International. 

- Thehindubusinessline
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  1. E-Commerce has become the one of important need for any business or it is another way to handle business easily by providing convenient services to public.

    In the last two decades, there have been improvements in the way online business is conducted.
    E-commerce sites and applications have contributed a lot to these changes, and the changes have improved how many online traders do business.
    Where some sites have over the years improved on various areas with a sole aim of improving on the business experience of both parties. On the other hand some sites are found to be very worst and fraud with their services, came to know after a survey, I have some of examples like, Indiatimes shopping, Timtara,, 100bestbuy, Rediff Shopping, ebay. Even I went through some of consumer forums and also found so many complaints against these sites. I think Govt. must take a needy action against these fraud sites.

  2. Dear Pankhuri, we are totally agree with the your comments. Legislative actions are still not so effective deal with such E-commerce transactions disputes.


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