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Satyam Computer Services has returned to the Australian Courts to again contest Australia’s taxing rights over fees paid by Australian customers for IT/technical services performed by Satyam employees based in India. Generally, service fee income is taxed in the state where the work is performed, but a provision in the Australia/India double tax treaty characterises the income as a ‘royalty’ which gives Australia taxing rights.
Australian businesses paying fees to foreign service providers for technical services will need to check that no element of the payment constitutes a ‘royalty’.
The Australian customer has an obligation to deduct royalty withholding tax (RWT) from the gross payment and remit that to the ATO. Penalties apply for failure to correctly characterise the payment as a royalty and to withhold and remit RWT.
This round 2 litigation raised an important international tax question:
Could a provision in a double tax treaty (Treaty) impose taxation where the domestic tax law, operating alone, would not?
The Full Federal Court did not have to decide this point, as it explained the correct interpretation of the domestic tax law incorporated the relevant Treaty provision, and thus there was no conflict. 
We wait with interest to see whether this decision marks the end of the litigation, or whether Satyam Computer Services will seek special leave to take the matter to the High Court. Based on the facts and the Federal Court reasoning, it seems unlikely special leave would be granted.
Given current developments in international tax law (independent of this case), and the commercial and political implications of the current case, it is to be hoped the High Court will take the opportunity to add its precedential views to the relevant International jurisprudence.
Who is the taxpayer: Satyam Computer Services or Tech Mahindra?
The two Indian companies were amalgamated in 2013. The round 1 litigation was commenced in the name of Satyam (which lodged the disputed 2008 Australian permanent establishment (PE) tax return) but the name changed during the hearings, and the round 1 decisions are in the name of Tech Mahindra.
