Adobe – Delhi High Court finds that India had no ability under Art. 7 of the U.S. Treaty to tax Adobe US on R&D servicing by its Indian sub whose fees already were subject to Indian tax in accordance with the arm's length pricing standard

Adobe U.S. received software-related R&D services on a cost plus 15% basis from its wholly-owned Indian subsidiary ("Adobe India"). The assessment officer (AO) had assessed Adobe India on the basis that its fees did not accord with the arm’s length standard. Adobe India had successfully appealed that assessment to the ITAT, and an appeal by the AO of that loss to the High Court of Delhi was in process. Bakhru J found that even if the taxpayer had a permanent establishment in India, the AO had no ability under Art. 7 of the U.S.-India Treaty to tax Adobe U.S. respecting the R&D services business of Adobe India as the latter’s fees already was subject to Indian tax in accordance with the arm's length pricing standard.

He went on to find that Adobe U.S. had no PE in India given that it had no right to use Adobe India’s premises – and there was no service PE as the only Adobe U.S. “service” potentially provided in India that the AO could point to was the right to audit Adobe India’s performance.

Neal Armstrong. Summaries of Adobe Systems Inc. v. ADIT, W.P.(C) 2384/2013 (Delhi High Ct) under Treaties Art. 7, Art. 5.