Qualcomm is not having a good time in India lately. First there was the whole furor over its talks with Indian CDMA mobile operator Reliance Communications breaking down as it refused to lower royalty charges. Then Reliance Communications, which operates India’s second-largest private mobile service, said it would focus on enhancing GSM services, which analysts see as a not so subtle threat to Qualcomm. Now, India’s tax department has sent the Indian unit of Qualcomm a notice seeking details on royalty collection in India, The Hindu Business Line newspaper reports.
The department has also approached Reliance and Tata Teleservices, both major clients of Qualcomm. According to local tax rules, if the patent holder has an office in India it must pay a certain percentage as service tax on royalties collected, the newspaper reports. If the patent holder is a foreign company with no office in India, the recipient Indian company, that is the user, has to pay service tax on royalty paid. “The financial statements of these companies have not shown any separate allocations for royalties paid to the US-based company,” a tax official told the newspaper.
If royalty is collected on the basis of Intellectual Property Rights, Qualcomm, which has offices in India, will have to pay 12.24 per cent on every invoice, a senior service tax consultant at Ernst and Young told the newspaper. “But if royalty is collected on the basis of a technical transfer agreement, the company will have to pay only about 5 per cent on every invoice,” the consultant said.
But a Qualcomm corporate communications official told the newspaper via email that only handset device makers, not operators, have to pay “associated royalty” to Qualcomm. “Average royalty paid on devices sold in India over the past 12 months is around 15 per cent lower than royalties that have been paid to Qualcomm in markets like Korea, Japan and the US,” the email said, adding that India accounts for only about 2.2 percent of our handset royalties.
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