1. Introduction

In a recent judicial precedent, an Indian company had paid ‘bandwidth charges’ to a Singapore company and it did not withhold tax on those payments. The Indian tax authorities concluded that those payments amounted to ‘royalties’ under Art. 12 of the tax treaty between India and Singapore. For reaching that conclusion, the tax authorities invoked Art. 3(2) of the tax treaty and referred to a domestic tax law provision for interpreting the word ‘process’ contained in the tax treaty definition of “royalties”.

This case is of far-reaching implications of global importance because if a source State’s tax authorities are allowed to import the domestic tax law provisions into the tax treaties, then that could provide to them an avenue for ‘treaty dodging’. The Indian tax authorities have made several such attempts.

This article covers in-depth analysis of the above-mentioned judicial precedent. It also examines as to whether the tax authorities can be permitted to resort to ‘unilateral tax treaty amendments’ through amendments in the domestic tax laws.