India Makes Landmark Tax Ruling Affecting Law Firms and their Solicitors

Thu, 22 Jul 2010

The Mumbai bench of Income-Tax Appellate Tribunal has made a landmark ruling which could have severe tax implications for foreign law firms in India . The ruling was made in a case between London based law firm Linklaters LLP and the Indian authorities, with Linklaters ordered to pay back tax for the 1995/96 tax year on its income of $4.9 million. In light of the ruling, Linklaters’ income in other financial years will also be scrutinised to see if they owe any taxes to the Indian authorities.

Linklaters had argued that it was not liable for tax payments as it had no permanent establishment in India, though the bench ruled that the tax was due as solicitors and lawyers from Linklaters had spent at least 90 days of the year in India, making all profits of the legal firms Indian operations were taxable.

Other foreign law firms are sure to be startled by the decision, which could see many leading legal outfits severely indebted to foreign governments. Moreover, the ruling applies across India, meaning foreign companies operating in India would also do well to take heed of the ruling.
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