India: Payment for sharing third-party shrink-wrapped software not a royalty (tribunal decision)

A tribunal decision concerning whether payment for sharing third-party shrink-wrapped software was taxable as a royalty.

Payment for sharing third-party shrink-wrapped software not a royalty

The Delhi bench of the Tribunal held that the payment received by a foreign company from its Indian affiliate for sharing a third-party shrink-wrapped software was not taxable as a royalty.

The case is: Saxo Bank A/S v. ACIT

The taxpayer was a foreign company providing capital market platform and other services through their online platform to traders and investors. The taxpayer entered into an agreement with a third party for centrally procuring various shrink-wrapped software for all its affiliates and then charged the cost of software to the affiliates (including an Indian company) for sharing access of software.

The tribunal held that payment made by the Indian affiliate to the taxpayer was not taxable as a royalty because there was no transfer of copyright in the software. The software granted to the taxpayer by the third party was an object code version only and on a non-exclusive, non-sub-licensable basis. Neither the taxpayer nor the Indian affiliate could sub-license, transfer, modify, or reproduce the software.

Read an April 2024 report prepared by the KPMG member firm in India


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