ConferenceLex (Call for Papers): Emerging Issues of Corporate Social Responsibility

ConferenceLex (Call for Papers): Emerging Issues of Corporate Social Responsibility

Dr. Mrinal S. Raste Joined KIIT Law School as Director

Dr. Raste Mrinal Sankar is a well-known law academician of the country. He obtained LL.M. and Ph.D. from University of Pune and has a rich academic and academic administration experience spanning more than 27 years. Prior to joining KIIT, he was Vice-Chancellor of Symbiosis International Educational Center (SIEC), Pune. Dr. Raste has worked in other responsible capacities such as Principal, Symbiosis Society's Law College, Dean, Faculty of Law, University of Pune and Academic Council Member, University of Pune. He is a member of several academic and professional bodies like Research & Recognition Committee, Dr.  Ambedkar University, Syllabus Reform Committee, University of Pune, Institute of Criminology and the World Jurist Organisation, to name a few. An avid academician, he has edited many journals and participated and presented papers in a large number of national and international level seminars and conferences.

Assuming of office on 2nd June, 2011 as a director re-energized the entire KIIT family. Now we have great hope and belief that KIIT Law School under his able leadership certainly become soon one of the best law school in the country.

-- 

Dr.Tabrez Ahmad,
Associate Professor , KIIT Law School,
Coordinator BCI Moot Court Competition
Coordinator Intellectual Property Law (Hons) Programme
Campus-16,KIIT University, PATIA, Bhubaneswar, Odisha, India, 751024.
Website: www.technolexindia.co <http://www.technolexindia.co.cc>m,
www.tabrez.org
Blog: http://tabrezahmad.technolexindia.com http://iplexindia.blogspot.com
Profile: http://www.google.com/profiles/tabrezahmad7.
Blogs: http://www.blogger.com/profile/15337756250055596327
Research Papers: http://ssrn.com/author=1189281
Mobile: +91 9438303042

Issues of Taxation on Intellectual Property Transactions

Intellectual property is one of the most important assets of many well-known major companies. However, in India the role and value of intellectual property in business is not fully understood yet. The taxation of intellectual property is a rapidly developing field requiring both intellectual property and tax practitioners to keep up with latest developments. Recent years especially have seen dramatic changes in tax laws affecting intellectual property transactions and litigation.

The cross border movement of multinational companies with their Intellectual Property rights (IPRs) offers much scope for the taxation of these rights and thus a considerable income for technology receiving countries. India opened its economy in 1991 with a bundle of tax reductions in customs and central excise duties, lowering the corporate tax, widening the tax net and is also one of the founding members of the WTO in 1995. The taxation of goods, services and income is a concept that has been prevalent for a long time, all over the world. Different categories are taxed with different objectives and purpose. Sometimes economies may want to discourage the use of foreign goods within their countries and consequently therefore the tax on imported goods will be high. However, interestingly, taxing of intellectual property is a recent phenomenon across the globe. Developments in science and technology and rapid communication have made it accessible to every country. In India intellectual property is taxed in many ways, though indirectly.

Technology transactions have been intensified with the advent of more and more foreign collaborations and technologies coming into the country. Technology transaction including commercialisation, licensing and assignment are another grey area where the industry needs clear guidelines and expert assistance, in taking decisions in technology transfer. Tax treatment and tax incentives differ according to the type of taxation. IP transfer and mode of payment may increase the tax liability. When the interest in the intellectual property is transferred to others and is treated as a transfer of ‘property’ for tax purposes, it can significantly affect technology transfers. Share transfer in the exchange of IP rights could have tax implications.

There are a number of corporate routes that a foreign company could adopt to enter the Indian market. Licensing the use of trademarks and technical know-how is the most easy and indirect among these corporate routes. Ordinarily licensing involves two parts: Licensing of technical know-how, Licensing of Intellectual Property Rights. The technical licensing between Indian Companies and foreign companies come under the Automatic Approval Route, if the payment terms satisfy the Government of India Guidelines. The Press Note(No.12 of 1991 Series dated 31.8. 1991) by the Indian Govt. has clarified the procedure in respect of foreign technology collaborations: Procedure in respect of foreign technology agreements. The government of India tabled a Statement on Industrial Policy in both the Houses of Parliament 24.7.1991. The statement has substantially liberalized the provisions and simplified the procedure governing Foreign Technology Agreements. The relevant portion of the Statement dealing with Foreign Technology Agreements is 39C, Foreign Technology Agreements:

1.      Automatic permission will be given for foreign technology agreements in high priority industries upto a lump sum payment of Rs. 1 Crore, 5 per cent royalty for domestic sales and 8 per cent for exports, subject to total payments of 8 per cent of sales over a 10- year period from the date of agreement or 7 years from commencement of production. The prescribed royalty rates are net of taxes and will be calculated according to standard procedures. 2.        3.      In respect of industries other than high priority industries, automatic permission will be given subject to the same guidelines as above if no free foreign exchange is required for any payments. 4.      All other proposals will need specific approval under the general procedures in force. 5.      No permission will be necessary for hiring of foreign technicians, foreign testing of indigenously developed technologies. Payment may be made from blanket permits or free foreign exchange according to RBI guidelines".

Press Note No. 10 of 1991 Series issued on 14.8.1991, set out the procedures for approval of foreign technology agreements, hiring of foreign technicians and foreign testing of indigenous raw materials and products and indigenously developed technologies. In that Press Note, it has been stated that applications for automatic approvals under paras 39C (i) and (ii) referred to above would be made to the Secretariat for Industrial Approvals (SIA) in the Department of Industrial Development. In the interests of entrepreneurs, this procedure has now been modified as below. Procedures relating to other matters, however, remain the same as in Press Note No.10.

The position of the Tax Code on the tax consequences of transactions involving goods, works and services leaves ambiguities for the taxation of transactions involving intellectual property. For example, in the case of export of intellectual property rights through electronic communication channels, whether the supplier can receive VAT deductions. At the same time, VAT deductions may be received in the case of export of intellectual property rights as a part of goods or equipment.

It is important to note the significant additional tax sums charged by the tax authorities and challenged in court cases connected to usage of trademarks by distributors, or cases of the tax inspectorates challenging the expenses or pricing model of intellectual property. The lack  of clarity in legal procedures in Indian tax law for reclassifying transactions for tax purposes also significantly complicates the issue of assessing the tax consequences of transactions involving intellectual property.

At the same time, even in Indian practice, issues surrounding the taxation of intellectual property rights are exerting a greater influence on purchasing and sales structuring and pricing, and on the tax consequences of transactions. For example, the introduction of VAT exemption for the sale of rights to use the results of intellectual activity under license may influence the system of establishing relations by contract between the parties of such a transaction. This exemption may significantly simplified delivery of software products through electronic communication channels, because it may cancel the duty of the buyer to act as tax agent for VAT.

Also, the possibility of applying the exemption has raised the competitiveness of suppliers who can offer customers the opportunity to purchase the rights to software products without VAT. Many of India's international agreements on avoiding double taxation contain special articles releasing royalties from taxation at the source of payment. This allows us to consider intellectual property rights as a convenient tool for tax planning.

Intellectual property rights therefore have more value than any other asset for the company that possesses them. For example, intellectual property rights can simultaneously be used as a source of current income, an element of tax planning and an important reserve to increase the company's capitalization.

This means that the issue of determining the tax consequences for transactions involving intellectual property rights, and the legal procedures for reclassifying transactions for tax purposes in the Tax Code, are rather pressing. It is absolutely necessary to bring these questions to the attention of the professional community and the authorities.

The global scenario of IP taxation affected considerably with the enactment of the American Jobs Creation Act of 2004, Tax Relief and Health Care Act of 2006, Congress created and/or the Tax Increase Prevention and Reconciliation Act of 2005, and the extended a host of new tax incentives and planning opportunities for intellectual property development, acquisitions, and assignments. Congress inaugurated favorable rules for musical copyrights and new incentives for film production. The legislators also extended tax breaks for computer software, and instituted new tax rules governing charitable donations of intellectual property. Congress also enacted a myriad of international tax rules affecting intellectual property, including new tax breaks for U.S. software developers. This cumulative supplement provides comprehensive coverage of these and other major congressional changes, including a new chapter dealing with charitable contributions of intellectual property.

The Internal Revenue Service and Treasury Department have issued a stream of new regulatory and administrative materials providing necessary guidance for planning intellectual property transactions. Shortly after the main text was published, the Treasury Department promulgated comprehensive regulations on the capitalization and amortization of intellectual property creation and acquisition costs, as well as new regulations dealing with the research and development credit. More recently, the Treasury Department promulgated a host of new regulations impacting international transactions, many of which relate to transfer pricing rules for controlled intellectual property transactions. For example, the Treasury Department has issued new regullations on the treatment of services transactions that affect a transfer of intellectual property and on the difficult issues of ownership and developer-assister determinations under section 482. This cumulative supplement summarizes these and other recently promulgated regulations, as well as the latest IRS rulings governing domestic and international intellectual property transactions. Additionally, in recent years, states have been more aggressive in addressing intellectual property holding companies, trademark holding companies, and electronic commerce transactions. This supplement summarizes recent state legislation, court decisions and administrative rulings impacting the popular intellectual property holding company.

In relation to general tax law in India, there is no specific definition of intellectual property in the Income Tax Act, 1961 (the “Act”). However, the Act differentiates between tangible and intangible assets in the definition of “block of assets” which is used for the purpose of computing depreciation on a class of assets and which may comprise of both of those types of assets. ‘Intangible assets’ are defined to include ‘know-how, patents, copyrights, trademarks, licenses, franchises or any other business or commercial rights of similar nature. While in the Income Tax Rules, 1962, (“Rules”) relevant to transfer pricing, the definition of ‘property’ includes ‘intangible property’ but intangible property has not been separately defined.  However, in the form that needs to be submitted to the tax authorities called ‘particulars relating to international transactions required to be furnished under the Income Tax Act’, transactions in intangible property are described as those which relate to ‘know-how, patents, copyrights, licenses, etc’.

In a recent decision by the Delhi High Court in Commissioner of Income Tax v. M/s Eicher Limited (formerly Royal Enfield Ltd.), it was held that the payment of non compete fee by the assessee was a business expenditure and not a capital expenditure. Direct expenditures are involved in case of creating know-how. In most jurisdictions of the world it is written off as revenue expenditure for business. Companies can treat the expenses for creating intellectual property as a capital expenditure and write it off over a period of time. It will show intellectual property as an asset. Whenever there is acquisition or creation of intellectual property, the money flow will be shown as an asset. The R&D expenses are usually written off by the companies under the concept of materiality.

The lack of a comprehensive policy on intellectual property taxation acts as a disincentive to technology transfer and IP creation in India. So a comprehensive Intellectual Property taxation regime should be developed, that could achieve a pro-growth momentum in the country. A uniform IP tax policy should be adopted throughout the states. All the present taxing system in different statutes and various landmark court decisions may be incorporated in the new legislation.

Wish all the Blog Readers a Very Happy Colourful & Safe Holi

Dr. Tabrez Ahmad on behalf of all the authors Wishes the Blog Readers a Very Happy Colourful & Safe Holi. Due to the kind of faith and confidence shown by various readers to us within a short time almost all the blogs and specially Technolexindia, IPlex, and Tabrezahmda's Blog have got lot of name and fame not only in India but also in different parts of the world. There are around 1.5 Thousand e-mail subscribers of our various blogs. Hope the same kind of cooperation, comment and suggestion will be provided to us and that will further help to upgrade the standard of blog postings.

Thanks all of you once again on the eve of Holi for all cooperation and encouragement shown to us in the last one year. 

--
Dr.Tabrez Ahmad,
Associate Professor , KIIT Law School, 

Coordinator BCI Moot Court Competition

Coordinator Intellectual Property Law (Hons) Programme
Campus-16,KIIT University, PATIA, Bhubaneswar, Odisha, India, 751024.
Website: www.technolexindia.com, www.tabrez.org
Blog: http://tabrezahmad.technolexindia.com http://iplexindia.blogspot.com
Profile: http://www.google.com/profiles/tabrezahmad7.
Blogs: http://www.blogger.com/profile/15337756250055596327
Research Papers: http://ssrn.com/author=1189281

Mobile: +91 9438303042

New Year 2011, Greetings

It is easy to be overwhelmed by the negatives. We cannot deny economic realities, uncertainties, wrongdoings and sufferings. Yet, there is always the silver lining of hope, achievement and the triumph of human spirit. And it all starts with a positive energy and wishes for the future from each of us. Because Sun glows for a day, Candle for an hour, Matchstick for a minute. But a wish can glow days forever. So here is Tabrez Ahmad on behalf of all the authors Wishes the Blog Readers a Very happy and prosperous New Year.  Due to the kind of faith and confidence shown by various readers to us within a short time almost all the blogs and specially Technolexindia, IPlex, and Conferencelex have got lot of name and fame not only in India but also in different parts of the world. There are around one thousand and five hundred e-mail subscribers of our various blogs. Hope the same kind of cooperation, comment and suggestion will be provided to us and that will further help to upgrade the standard of blog postings.

 

My wishes for your glowing life in NEW YEAR, 2011.

 

Oh my Dear, Forget ur Fear,
Let all ur Dreams be Clear,
Never put Tear, Please Hear,
I want to tell some thing in ur Ear
I pray! This New Year may bring to you.
The joy that never sees the eclipse, 
The hope which never meets the despair, 
The mind that fastens human bonds, 
The heart which bleeds for the love of man, 
The soul that buries all its ills, 
The world which aspires for the lasting peace, 
The passion that even the angels envy, 
The humility which placates the Divine Wrath,  

This is beginning of a new year!
Like birds, let us, leave behind what we don't need to carry…
GRUDGES, SADNESS, PAIN, FEAR and REGRETS
Life is beautiful, Enjoy it.

Thanks all of you once again for all cooperation and encouragement shown to us in the last one year. 

Bye. Take care.

--
Dr.Tabrez Ahmad,
Associate Professor of Law, KIIT Law School, 
Campus-16,KIIT University, PATIA, Bhubaneswar, Odisha, India, 751024.
Website: www.site.technolexindia.com
Blog: http://tabrezahmad.technolexindia.com http://iplexindia.blogspot.com
Profile: http://www.google.com/profiles/tabrezahmad7.
Blogs: http://www.blogger.com/profile/15337756250055596327
Blog: http://drtabrez.wordpress.com  http://tabrezahmad.typepad.com/blog/
Research Papers: http://ssrn.com/author=1189281

Mobile: +91 9438303042

ConferenceLex (Call for Papers): 1st GNLU International Conference on Trade & Competition Law

ConferenceLex (Call for Papers): 1st GNLU International Conference on Trade & Competition Law

Faulty Management Education is Responsible for the Financial Crises

Image via Wikipedia

The different management theories which the companies and B-schools used to swear by have fell flat in the real world. Companies  are also looking for talent from varied fields and not just going on a spree of hiring prodigies from leading Business schools. In fact experts from the field believe that the way management is taught is partly responsible for the ensuing financial crisis.  The management education should focus more on real and future market situation than on the bookish knowledge. The teachers who teach the management some times dont have any real market's practical experience. So a real mixture of theory and practical with well balanced training of teachers are also a must. Now it is time to overhaul the management education, upgrade the syllabus and train the teachers so as to bring out a healthy combination of the hard and soft skills for well rounded development of managers?.Hope the management education planners will realise the importance and take serious steps so the financial crises can be avoided in future.

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