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AAR rules that the reimbursement of R&D expenses under Cost Contribution Agreement is not liable to tax in India

India
19 Mar 2010

The Authority for Advance Rulings ("AAR") has delivered an important ruling holding that the reimbursement of research and development ("R&D") expenses under Cost Contribution Agreement ("CCA") is not liable to tax in India. Taxand India identify the main facts of the case and issues that have arisen.

Taxand's Take


This is an important ruling upholding that the contributions under the CCA are not liable to tax in India. Several multinational companies implement the CCA as a part of their IP development strategy. While such arrangements are more prevalent in R&D activities, it is also witnessed in developing other intangible assets. This ruling clarifies the withholding tax aspects of such contributions. The ruling also reiterates the principle that tax is to be withheld at source only if the underlying payment is liable to tax in India.

Your Taxand contact for futher queries is:
Sriram Seshadri
E. sriram.seshadri@bmradvisors.com

Ashka Dave
E. ashka.dave@bmradvisors.com

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