Introduction
In International Taxation, the concept of “make available” is very important to be looked into. It helps in determining whether the concerned fee paid for the services which are rendered cross-border would be classified as royalties or fee for technical services and would attract the withholding tax. Understanding how “make available” works helps the entities and tax authorities to assess the tax implications of various service agreements, especially with reference to double taxation avoidance agreements (DTAA) between countries.
In this article, we will try to understand the concept of “make available” in detail, its role in taxation, how it is under DTAAs, some important judicial precedents, and how it should be treated in regards of international transaction.
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1. Defining the “Make Available” Concept
The term “make available” is mostly used in different DTAAs that are entered into by various countries in order to clarify as to when withholding tax would be applicable on the said transactions. Broadly, the “make available” concept is applicable when technical knowledge, experience, or skill is transferred to the recipient of the services in such a manner that the recipient of the services is able to apply this knowledge or technical know-how independently i.e. without the assistance of the service provider after once such services are completed.
The “make available” concept is mostly important in determining whether payments for certain technical, managerial, or consultancy services would be considered as “fees for technical services” (FTS), which could then attract withholding tax under the relevant tax treaty provisions and the concerned domestic laws.
Key Points:
- “Make available” requires that the recipient has acquired sufficient information or know-how to apply the said technology, skill, or knowledge on their
- Services that merely require a foreign company to perform a task and does not particularly transfers any such knowledge or technical know-how to the recipient do not qualify as “make available” as the recipient would not be equipped to use the said knowledge or skill independently in the
2. Understanding the Role of “Make Available” in DTAAs
Many DTAAs contain specific clauses that define treatment of taxation of fee for technical services. The inclusion of the “make available” clause acts as a safeguard against excessive taxation of cross-border payments for the services, ensuring that only those services where there is a genuine transfer of knowledge or technical know-how, which would enable the recipient of the services to apply the said knowledge independently are taxed.
For instance, let us consider the India-US DTAA, under which the term “fees for included services” applies only when technical knowledge or skill is made available to the recipient. If the foreign entity (in this the US entity) is merely performing/rendering a service without actually transferring any knowledge or the technical know-how which would equip the recipient to use that service independently, the fees would not qualify as “fees for included services,” and thus there would be no application of withholding tax to such transaction.
Practical Example:
Let us take a scenario where an entity in India takes some engineering consultancy services relating to some project from another entity which is in the United States. Now in this case if the US entity provides consultancy services but does not transfer any technical expertise to the Indian entity (i.e., the Indian entity would not be able to apply such knowledge or expertise independently after the end of the provision of such services from the US entity’s end), then the services may not be considered “made available.” Therefore, the payments made by the recipient may not attract withholding tax under the India-US DTAA.
3. Judicial Interpretation of “Make Available”
The interpretation of the concept of “make available” has been subject to numerous court rulings, even in India, where several debates have been sparked. Courts have consistently held that for services to be covered under the concept of “make available”, the recipient must acquire the ability to apply the technology, skill, or knowledge independently i.e. without the support of the service provider.
Relevant Cases:
i. De Beers India Minerals Ltd. (ITA No. 549 of 2007)
In this case, the Tax Tribunal in India ruled that for technical services to be covered under/considered as “make available”, there must be a transfer of technical knowledge, skill, or expertise that would make the recipient to use the said knowledge, skill or expertise independently
i.e. without the continued involvement of the service provider.
ii. G.E. India Technology Centre Pvt. Ltd. v. CIT (2010)
In this case, the Supreme Court of India ruled that fees paid to a foreign service provider were taxable in India because the technical services provided made available technical knowledge that the Indian entity could use independently.
iii. Intertek Testing Services India Ltd. (AAR) (307 ITR 418)
“Rendering technical or consultancy service is followed by a relative pronoun “which” and. it has the effect of qualifying the. services. That means, the technical or consultancy services rendered should be of such a nature that “makes available” to the recipient technical knowledge, know-how and the like. The service should be aimed at and result in transmitting the technical knowledge, etc. so that the payer of service could derive an enduring benefit and utilize the knowledge or know- how in future on his own without the aid of service provider.”
From such judicial precedents and many more we understand that for concept of “make available” to apply, it must be evident that the recipient has gained some level of self-sufficiency or independence or capability in the application of such knowledge or skill or expertise.
4. Distinction from Other Service Payments
The difference between services that might be considered as or come under “make available” technical knowledge and those that only involves performance or rendering of services needs to be understood in depth. Payments for some services, such as providing support to IT, or providing some managerial consultancy or advice, or rendering services relating to routine maintenance, would not be qualifying as technical services under the “make available” because they are not transferring any skill or know-how or expertise to the recipient which would enable the recipient to replicate those services independently i.e. without the support of the service provider.
Below are some services which may to qualify to be considered under “make available”
- Services provided for routine consultancy: For example, services provided by a foreign entity relating to marketing or advisory to an Indian entity would not be considered under “make available” as there is no transfer of such knowledge, skill or
- Services provided for only execution of some task: When a service provider is only performing a task (e.g., constructing a building infrastructure) and not making the recipient equipped or capable to replicate the said service independently, the conditions under “make available” would not be
5. Implications for International Business
In order to optimize tax liability, it is essential for the Foreign entities to understand what exactly would be considered as “make-available” as in a situation where a service does not meet the “make available” conditions, the payment for such services may not attract withholding taxes under certain DTAAs, and this would help the entities in cost saving as well.
Following are some points which might be taken into consideration relating to “make available”
- Contractual Clarity: The service agreement should me drafted in such a manner that it is clearly specifying the intent of transfer of knowledge or skill than just the performance of the said
- Jurisdictional Review: The DTAAs should be deeply analyzed in order to understand what will qualify as “make available” and Also, the judicial precedents should be carefully studied to get the clarity on the interpretation of such clause.
- Tax Compliance: Adequate documentation, including contracts and invoices, which are making tax positions regarding “fees for technical services” should be maintained properly in order to to avoid disputes with tax authorities.
6. Conclusion
In International Taxation, the concept of “make available” is very important in determining the tax treatment of payments made for cross border transactions and provision of services. An in-depth insight about this is essential for entities in order structure their concerned transactions efficiently and avoid unnecessary withholding tax liabilities.
In the increasingly globalized business environment, awareness of the nuances of international tax provisions like “make available” is extremely necessary for ensuring optimized tax liabilities and also remaining compliant with relevant treaties.
Key Takeaway:
“Make available” requires a transfer of knowledge or skill or expertise would enable or equip the recipient to apply it independently i.e. without the service provider
By: Sonali Juyal
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