In the rapidly evolving world of online travel booking, Booking.com stands out as one of the giants, serving hotels and resorts across India and the globe. With the digital platform connecting millions of travelers with accommodations, it has become an indispensable tool for hotels and resorts to manage their reservations and bookings. While the partnership with Booking.com brings numerous benefits, it is essential for hotels and resorts to have a clear understanding of the Tax Deducted at Source (TDS) implications when transacting with the platform.
Booking.com often informs its partners via email that TDS does not apply to the commission payments made to them. However, the lack of further clarifications on the matter has left many partners in a state of ambiguity. Surprisingly, some partners who opted to deduct TDS have encountered issues with Booking.com, such as having their accounts frozen. Given that for most partners, a substantial portion of their bookings comes through Booking.com, they cannot afford to offend the platform. This raises an important question – Does TDS apply to commission payments to Booking.com?
Basic Provisions of Section 194H
To answer this question, we need to refer to the basic provisions of Section 194H of the Income Tax Act, 1961. This section deals with TDS on commission or brokerage. It states that any person making payment of any income in respect of commission or brokerage is required to deduct TDS. The person liable to deduct TDS under this section is required to deduct TDS at a rate of 5%, unless the payment does not exceed Rs. 15,000 during the financial year.
Booking.com argues that TDS is not applicable to them since they are a foreign entity governed by the Netherlands-India Double Taxation Avoidance Agreement (DTAA). However, an issue arises when we examine the invoices issued by Booking.com to its partners.
Extract from MCA Master Data Regarding Booking.com:
The Ministry of Corporate Affairs (MCA) data provides valuable insights into Booking.com’s presence in India. According to the MCA data, Booking.com operates in India through a company named “BOOKING.COM INDIA SUPPORT & MARKETING SERVICES PRIVATE LIMITED.” The company’s Corporate Identification Number (CIN) is U93000MH2011FTC217827.
Furthermore, Booking.com has a physical presence in India, with an office located in Mumbai at Unit No.06, Level 7, Parinee Crescenzo, Plot No. C-38/39, G-Block, Bandra Kurla Complex, Bandra East, Mumbai – 400051. This physical presence raises questions about the concept of a Permanent Establishment (PE) under the Income Tax Act.
Permanent Establishment and Its Implications
According to the Income Tax Act, a foreign enterprise is considered to have a Permanent Establishment in India if it conducts business activities in the country. In such cases, the business income attributable to the activities carried out in India becomes taxable in India under Article 7 of the Income Tax Treaty between India and the foreign country.
This concept of Permanent Establishment is crucial in determining whether TDS provisions are applicable to Booking.com’s commission payments. If Booking.com is deemed to have a Permanent Establishment in India, its income would be subject to TDS. However, if there is no Permanent Establishment, then the income would not be taxable in India, and hence, no TDS provisions would apply.
Analysis of Permanent Establishment
To ascertain whether Booking.com’s office in Mumbai constitutes a Permanent Establishment, we need to refer to the provisions of the Netherlands-India DTAA. The DTAA defines the term “Permanent Establishment” and specifies what activities fall under its purview.
Article 5 of the Netherlands-India DTAA defines Permanent Establishment and lists exceptions to the definition. One of the exceptions states that a fixed place of business used solely for purposes like advertising, supplying information, scientific research, or other activities of a preparatory or auxiliary character for the enterprise does not constitute a Permanent Establishment.
Considering that Booking.com’s Indian subsidiary is named “BOOKING.COM INDIA SUPPORT & MARKETING SERVICES PRIVATE LIMITED,” it is safe to assume that its office in Mumbai exists solely for providing support services. Such support services are typically considered activities with a preparatory or auxiliary character for the enterprise. Therefore, this falls under the exclusion provided by the Netherlands-India DTAA.
Conclusion: TDS Not Required for Booking.com Commission Payments
Based on the analysis of Section 194H of the Income Tax Act, Booking.com’s corporate presence in India, and the provisions of the Netherlands-India DTAA, it can be concluded that TDS is not required to be deducted when making commission payments to Booking.com.
Note: Equalisation Levy
It is important to note that being a non-resident e-commerce operator operating in India, Booking.com is subject to the Equalisation Levy under Section 165A of the Finance Act, 2020. However, the responsibility for paying this levy lies with Booking.com itself, relieving its partners from any tax liability related to this provision.
Disclaimer:
The information provided in this article reflects a personal opinion and is based on the interpretation of relevant provisions. It is advisable to independently verify this information and seek professional advice before making financial decisions related to TDS and tax compliance with Booking.com. Tax laws and treaties can be complex and subject to change, so staying informed is essential for accurate financial planning.
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Team,
Pls suggest me, Should we deduct tds on commission paid to Booking.com and Agoda.