Indian Tribunal Holds Domestic Royalty Definition under Income Tax Act Not Applicable under Tax Treaty with Netherlands

The Mumbai Income Tax Appellate Tribunal recently issued a decision on whether India's domestic definition of royalties as amended applies under the 1988 income and capital tax treaty with the Netherlands. The case involved Netherlands-based Baan Global BV (Baan), which develops and sells software.

In the 2008-09 tax year, Baan had a distribution agreement with its Indian subsidiary for the sale of software to Indian customers. Under the agreement, the subsidiary was only responsible for tak…