FAQs on withholding tax & patents

Qsn 1. What is the percentage rate of "withholding tax" which is deducted from the royalty payments to Dutch companies by an Indian company?

As per the Double Taxation Avoidance Agreement (DTAA) between the Netherlands and India - The tax should be deducted @10% as per DTAA or as per the IT Tax (currently 10.56%) whichever is lower so the applicable tax rate is 10% provided the vendor has the corrected pan with the Indian Government. If the vendor doesn't have corrected PAN then the tax should be deducted @ 20% as per latest amendment. For detail, refer section 206AA of Income Tax Act.

Nowadays, foreign companies receiving income from India need to apply for a PAN number, to account for the taxes withheld on their incomes, and file a return. This entitles them to the benefit of the lower deduction of 10%.

Qsn 2. Under the Double Taxation agreement between NL & India, can the Dutch company claim the "withholding tax" deducted in India against their own corporate taxes?

Credit of withholding tax is available to the extent Dutch laws allow the exemption. The Dutch company can claim the amount deducted by the Indian company against their corporate taxes. For this we have to issue them form 16A. The texts of the DTAA are as follows

However, where a resident of the Netherlands derives Royalty due to a PE resident in India, may be taxed in India and the Netherlands shall exempt such items of income or capital by allowing a reduction in its tax. These reductions shall be computed in conformity with the provisions of Netherlands law for the avoidance of double taxation. For that purpose the said items of income or capital shall be deemed to be included in the total amount of items of income or capital which are exempted from Netherlands tax under those provisions.

The Netherlands shall allow a deduction from the Netherlands tax so computed for Royalty generated in India for benefit in Netherland may be taxed in India. The amount of this deduction shall be equal to the tax paid in India on these items of income, but shall not exceed the amount of the reduction which would be allowed if the items of income so included were the sole items of income which are exempted from Netherlands tax under the provisions of Netherlands tax for the avoidance of double taxation.

Qsn 3. How to acquire a patent or any other intellectual property?

The Office of the Controller General of Patents Designs and Trademarks (CGPDTM) (http://www.ipindia.nic.in/), a subordinate office under the Department of Industrial Policy and Promotion (DIPP) directs and supervises the functioning of patents, designs, trademarks and Geographical Indications. The office is responsible for the administration of Patents Act, 1970, Designs Act, 2000, The Trade Marks Act 1999 and Geographical Indications of Goods (Registration & Protection) Act, 1999 though its Intellectual Property Offices located at Mumbai, Delhi, Kolkata, Chennai and Ahmadabad. The manuals on practices and procedures can be referred from the links below:

As an illustration, the procedure for acquiring a patent in India has been mentioned below. Although the following information provides a basic introduction to the process, a great deal of research is required to file a credible patent application.

Substantive patent law in India is not fundamentally different than patent law in most other nations. Nevertheless, certain procedures must be strictly followed. The patent process in any nation, including India, is long, complex and time-consuming. The assistance of an experienced patent attorney is advisable every step of the way.

• Check to make sure that your invention is not excluded from patentability under Indian legal exclusions for certain types of inventions such as agricultural methods (refer http://ipindia.nic.in/ipr/patent/patent_2005.pdf,http://www.indianpatent.com/pages/faq_patent.htm).
• Perform a "prior art" search. This is a search in which you look for patented (or formerly patented) technology that is similar to the technology that you wish to patent. The purpose is to determine whether or not any aspects of your invention have already been patented or have entered the public domain through an expired patent. It is also designed to help determine whether your invention is sufficiently "novel" and "non-obvious" to be eligible for patent protection.
• File a provisional patent application with the Indian Intellectual Property Office (IIPO). Applications for patents can be filed electronically at https://ipindiaonline.gov.in/on_line/, besides other means.
  • For e-filing, applicant / agent must have a digital signature. For the first time, applicant / agent has to register as a new user and has to create login ID and password on the Patent office portal (http://www.ipindia.nic.in)
  • A preliminary Software (Client Software) has to be downloaded from the site and has to be installed on the host computer. With the help of said software, an XML file gets generated and all the relevant documents (i.e. Form 1, Form 2, Form 3, etc.) in soft copy have to be uploaded. An Application number and CBR receipt gets generated after successful uploading.
  • You should include specification answering the question of why your invention meets the three main criteria for patent protection - novelty, usefulness, and non-obviousness (these terms have specific legal meanings that should be reflected in your claims). Because India uses a "first to file" patent protection system, your provisional application should contain specifications that identify your invention specifically enough to prevent someone else from obtaining patent protection of identical or near-identical technology.
  • File complete specifications with the IIPO after demonstrating its workability in a lab or building a prototype of it. Your specifications should contain descriptions, graphical representations, and formal claims sufficient to allow someone else to build a prototype of it.
  • Answer objections and requests for clarification issued by IIPO, and amend your application as required. This is essentially a negotiation process between the applicant and IIPO.
  • The applicant / agent will receive the filing receipt and CBR immediately after acceptance of Application in the software, with Patent Application number, date and time of filing.
  • The Office is in the process of upgrading the e-filing platform so as to enable an applicant to file all subsequent papers electronically. It is also proposed to make e-filing compulsory in the near future.

Qsn 4. How to enforce existing IP when infringement takes place?

The figure below illustrates the various stages of patent life cycle, disputes therein and platforms used for dispute resolution.

Patent Dispute Resolutions Platforms

The courts in India receive (a) Patent Administrative Cases and (b) Patent Infringement Cases. In patent administrative cases, the Indian Patent Office is the defendant. These types of cases includes dispute on grant of a patent, patent invalidation and upholding, and compulsory licensing. In patent infringement cases, patentee or patent assignees pursue damages against willful infringement conduct by the alleged infringer. These cases includes infringement of patent, disputes relating to ownership of patent, disputes regarding patent rights or right for application, patent contractual disputes, contractual disputes of assignment of patent right, patent licensing, and dispute relating to the revocation of patents.

Fig. 1 below shows the hierarchy of courts in patent administrative cases. As regards to the administrative cases the appeal is made to the Appellate Board under Sec. 117-A of the Patents Act, 1970. While Fig. 2 below shows the hierarchy of courts in patent infringement cases. Regarding the disputes pertaining to infringement, Section 104 of The Indian Patents Act 1970, states that the patent infringement suit shall not be instituted in a court lower than District Court in India. Further, if the defendant files a counterclaim against revocation of the patent, then the suit, along with the counter-claim, shall be transferred to the High Court for decision.

Patent infringement disputes in India starts with a suit that a plaintiff files in the District Court, which is followed by a reply to the suit by the defendant. Subsequently, a hearing is held as per the Patent Rules 2003 in the District Court, taking into consideration evidences, scientific expertise testimony, statements of the witness etc. After considering the defenses put by defendants the District Court decides the dispute and award the damages or prescribe the penalties, provided the infringement is found. If any of the plaintiff and the defendant are not satisfied, they can approach the High Court under Article 226/227 and further to the Supreme Court under Article 32,133,136,or 142, as shown in fig. 2.

In India only High Courts have the power to deal with matter of both infringement and invalidity simultaneously. A specialized forum, i.e., Intellectual Property Appellate Board (IPAB) has now been established. Provisions related to IPAB were introduced into the Act in 2002 and are enforced now. Also, all pending appeals from Indian High Courts under the Patents Act were to be transferred to the IPAB from April 2, 2007. The IPAB has its headquarters at Chennai and has sittings at Chennai, Mumbai, Delhi, Kolkata and Ahmadabad. The IPAB is the sole authority to exercise the powers and adjudicate proceedings arising from an appeal against an order or decision. Also, all the cases pertaining to revocation of patent other than a counter-claim in a suit for infringement and rectification of register pending before the Indian High Court have been transferred to the IPAB. In case of a counter-claim in a suit for infringement, the Indian High Court continues to be the competent authority to adjudicate on the matter. The IPAB also has exclusive jurisdiction on matters related to revocation of patent and rectification of register. The IPAB in its sole discretion may either proceed with the appeals afresh or from the stage where the proceedings were transferred to it.

Qsn 5. Are subsidy schemes from the Indian government available for Dutch companies? If not directly, how could a Dutch company become eligible for these subsidies?

There are no subsidy schemes specifically for the Dutch companies. However, some states with a view to attract foreign investors offer incentive packages in the form of various tax concessions, capital and interest subsidies, reduced procedural complications for setting up and operating the industrial units in the form of a Single Window Clearance System. The details on various schemes / incentives offered by these states can be referred from the websites of respective states’ Departments of Industries and Commerce.