the indian aar’s ruling in mastercard (6 june...
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The Indian AAR’s Ruling In MasterCard (6 June 2018)
Dr. Amar MehtaJune 2018
www.dramarmehta.comwww.internationaltax.online
MasterCard Asia Pacific Pte. Ltd.(The AAR)(6 June 2018)
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Customers(Various Banks)
MasterCard Asia Pacific
Service as per MLAs
MasterCard Asia Pacific Pte. Ltd.(The AAR)
Background Facts:
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IndiaSingapore
Processing Fee payment
2
MasterCard Asia Pacific Pte. Ltd.(The AAR)
Background Facts:
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Taxpayer Co.’s (MasterCard’s) Revenue Stream: Transaction processing fees (related to authorization, clearing and settlement
of transactions);
Fees for setting up and maintaining a processing network; and
Miscellaneous revenue from ancillary services.
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Taxpayer Co.
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2
3
Was a Regional Headquarter.
Provided transaction processing and payment related services.
Owned – Singapore processing center.
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MasterCard Asia Pacific Pte. Ltd.(The AAR)
Background Facts:
4
Taxpayer Co.
4
5
Owned – Subsidiary in India.
That Subsidiary owned and maintained the MIPs placed at the premises of the customers in India.
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MasterCard Asia Pacific Pte. Ltd.(The AAR)
Background Facts:
5
MIP (MasterCard Interface Processor)
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2
The customers (banks) were provided with an MIP.
An MIP was connected to MasterCard's network and processing centers.
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MasterCard Asia Pacific Pte. Ltd.(The AAR)
Background Facts:
6
MIP (MasterCard Interface Processor)
3
4
An MIP was about the size of a standard personal computer and was placed at the customers' premises in India.
The taxpayer company’s Indian subsidiary owned and maintained the MIPs placed at the premises of the Indian customers.
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MasterCard Asia Pacific Pte. Ltd.(The AAR)
Background Facts:
7
Bank of
Issuer
Bank of
Merchants
Electronic processing of payments
MasterCard Asia Pacific Pte. Ltd.(The AAR)
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(MasterCard Worldwide Network)
Background Facts:
8
MasterCard Asia Pacific Pte. Ltd.(The AAR)
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1 Initial level verification and validation of a transaction.
Steps involved in processing the payment:
2 Authorization of the transaction.
Background Facts:
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MasterCard Asia Pacific Pte. Ltd.(The AAR)
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3 Clearing and settlement of the transactions.
Steps involved in processing the payment:
Background Facts:
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MasterCard Asia Pacific Pte. Ltd.(The AAR)
Issues For Discussion:
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1 Fixed place PE – Disposal test.
2 MIP ownership, VAT/GST payment, relevance for disposal test.
3 Transmission towers, etc. owned by third party – MasterCard’s PE?
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MasterCard Asia Pacific Pte. Ltd.(The AAR)
Issues For Discussion:
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4 Could use of Internet/ network in India give rise to Fixed place PE?
5 Could presence of the subsidiary make a difference?
6 Could closure of LO and setting-up of Subsidiary give rise to PE?
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MasterCard Asia Pacific Pte. Ltd.(The AAR)
Issues For Discussion:
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7 Could subsidiary be regarded as ‘virtual projection’ of erstwhile PE?
8 Could ownership of a software give rise to a PE?
9 Could activities of Bank of India cause MasterCard’s PE in India?
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MasterCard Asia Pacific Pte. Ltd.(The AAR)
Issues For Discussion:
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10 Preparatory and auxiliary activities issue.
11 Functionality Test issue.
12 Service PE issue..
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MasterCard Asia Pacific Pte. Ltd.(The AAR)
Issues For Discussion:
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13 Royalties issue.
14 Tax Avoidance issue.
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