Judgement Briefs

Taxation Law

eBay International AG v. ADIT

(2012) 25 taxmann.com 500 (Mumbai-Trib.)

Citation
(2012) 25 taxmann.com 500 (Mumbai-Trib.)
Court
Income Tax Appellate Tribunal, Mumbai
Date
21 September 2012
Bench
R.S. Syal AM and Amit Shukla JM

Facts

  • eBay International AG was a Swiss tax resident operating India-specific online marketplace websites.
  • Indian sellers listed products on those websites and paid user fees when successful transactions occurred.
  • eBay earned approximately ₹4.94 crore from Indian operations.
  • eBay India and eBay Motors provided services including:
  • marketing and promotion;
  • market information;
  • local customer support;
  • collection and remittance of user fees;
  • administrative support.
  • They were compensated on a cost-plus basis.
  • The Assessing Officer treated eBay’s receipts as FTS.
  • The CIT(A) held that they were business profits but found that eBay India and eBay Motors constituted dependent-agent PEs.
  • eBay and the Revenue filed cross-appeals.

Issue

  • Whether the user fees were FTS or business profits.
  • Whether the Indian group companies constituted:
  • dependent-agent PEs; or
  • a place of management of eBay AG.
  • Whether eBay’s business profits were taxable in India under the India–Switzerland DTAA.

Rule

  • A standard technological facility does not become a technical service merely because technology is used to create or operate it.
  • Managerial, technical or consultancy services require an identifiable service of that character to the payer.
  • Under Article 7, business profits are taxable in India only where the foreign enterprise has a PE.
  • An economically dependent agent becomes a PE only if it performs the treaty-specified functions, such as:
  • habitually negotiating or concluding contracts;
  • maintaining stock for delivery;
  • manufacturing or processing goods for the enterprise.
  • Economic dependence alone is insufficient.

Application

  • The website functioned as a standard online marketplace.
  • Buyers and sellers independently selected and transacted in products.
  • eBay did not:
  • manage their transactions;
  • advise them what to purchase;
  • provide individual technical expertise;
  • supply technical personnel.
  • Use of an automated website was therefore not managerial, technical or consultancy service.
  • The receipts were business profits.
  • eBay India and eBay Motors worked wholly or almost wholly for eBay AG.
  • They were therefore economically dependent agents.
  • However, the Tribunal separately examined whether they satisfied the additional DAPE conditions.
  • Contracts between eBay AG and sellers were concluded online through websites controlled outside India.
  • The Indian companies:
  • did not negotiate contractual terms;
  • did not conclude contracts on eBay’s behalf;
  • did not maintain or deliver goods;
  • did not manufacture or process goods.
  • Marketing activity and fee collection did not constitute contractual authority.
  • The Indian companies also did not constitute eBay’s “place of management.”
  • They took no overall managerial decisions concerning eBay’s business or its websites.
  • Their functions remained market-support functions.
  • Therefore, although they were dependent agents, they did not become dependent-agent PEs.

Held

  • The ITAT held that:
  • the user fees were business profits, not FTS;
  • eBay India and eBay Motors were dependent agents;
  • they were not dependent-agent PEs because they performed none of the treaty-specified PE functions;
  • they were not a place-of-management PE;
  • eBay AG had no PE in India.
  • Its Indian-source business profits were therefore not taxable under Article 7.
  • eBay’s appeal was allowed and the Revenue’s appeal was dismissed.