Tax Treaty Case Law around the Globe 2023

1. Introduction

This case discusses the Indian withholding tax liability of Google India on the payments made towards the purchase of advertising space to Google Ireland. Google India was acting as a distributor of Google Ireland for advertising space under Google’s “AdWords Program” for the years in question.

The tax office took the view that the income received by Google Ireland from Google India was in the nature of royalty income and, hence, Google India should have withheld taxes on the same under the India-Ireland tax treaty. The tax office invoked various clauses of the definition of royalty and took the position that the income of Google Ireland could be covered under not one but multiple clauses of the royalty definition under the Indian Income-tax Act, 1961 (the Act). The tax office further held that the same definition applied to the India-Ireland tax treaty and, hence, the income would be taxable under the treaty as well.

The tribunal ruled that the income did not constitute royalty and, hence, no tax was required to be withheld.

S. 1702. Facts of the case

The case covers the financial years ending 31 March 2008 to 2011. Google India had entered into an AdWords distribution agreem...