New Delhi, July 27th 2016 | The Delhi High Court in the matter of CUB Pty Limited (formerly known as Foster’s Australia Ltd.) has held that the situs of an intangible asset would be the situs of the owner of that asset, irrespective of the fact that the intangible asset under consideration is deriving its value through brand development and nurturing exercises in India.
In this case, the owner of intangible assets under consideration was located in Australia. Accordingly, the said intangible assets were held to be located in Australia, i.e., outside India. Consequently, the Delhi High Court held that the Indian Revenue Authorities had no jurisdiction to tax the income arising on transfer of the same.
In this matter, the petitioner was represented by Seth Dua & Associates.
The law firm commented that the decision of the Delhi High Court is a landmark and welcome decision. The judgment is a one of its own kind and the first decision delivered by Indian judiciary on the issue of off-shore transaction of transfer of intangible assets, which would have long lasting impact on non-resident taxation/ transfer pricing matters on intangible assets used in India. Generally, in international M&A transactions covering many jurisdictions, brands used in such jurisdictions under license from the owner/ parent entity are also transferred. This decision has established the internationally accepted principle that such brand transfers will only be taxable in the jurisdiction of the owner/ parent entity and not where brands were used under license, prior to such transfer. Accordingly, a cross border business transfer transaction involving transfer of both tangible and intangible assets needs to be structured and devised properly keeping in mind the differential tax treatment in India in respect of both types of assets.
To learn more about the case and the decision of the Delhi High Court please click here.