Taxation of Shipping Income under Tax Treaties – Development of Case Law in India

About 90% of India’s sea-bound cargo is handled by foreign carriers. Hence, shipping income provisions under various Indian tax treaties have gained significant importance in recent years and India is one of the few jurisdictions with a substantial number of court decisions on the subject matter. Article 8 of the OECD MC attributes the exclusive right to tax shipping profits to the state in which the effective management of the enterprise is situated. Article 8 of the UN MC leaves the matter open. Some important Indian tax treaties deviate from the OECD MC and permit India (as a source state) to tax to a certain extent a foreign shipping enterprise’s income from operation of ships in international traffic. The most prominent decisions of the Indian Income Tax Appellate Tribunal (ITAT) dealing with interpretation shipping provisions in various Indian tax treaties are discussed in this article.