The issue of how to tax cloud computing services when provided by foreign big tech companies has been much disputed in recent years.
On one side, tax officials argue that foreign companies that receive payments for technology-related services, like cloud computing or internet leased lines provided to Indian customers, are essentially earning royalty or fees for included services (FIS), hence are liable to tax.
On the other hand, the tech companies insist that in the absence of any copyrights being provided in the underlying works and in the absence of any control over the underlying infrastructure, the sums are not taxable.
Obviously, by defining technical services like cloud computing as royalty or FIS, tax officials are trying to create a taxing right within existing tax treaty frameworks.
So what do the tax treaties say?
Let’s look, as an example, at the India-US double taxation avoidance agreement (DTAA). It says that US tax residents, like Amazon Web Services Inc. (AWS), do not need to pay taxes in India on most income earned there, with certain exceptions such as if they earn royalties or FIS.
The Delhi High Court in its landmark ruling (see our article on 12 July 2025) stated that AWS provided customers the use of its cloud computing platform including hardware and software, and that its cloud services allow customers to build and develop their own content. However, the court said that AWS did not transfer any of its proprietary equipment or intellectual property rights to clients, nor was it found to transfer technical know-how, skill or knowledge to customers (the conditions for income to be considered royalty or FIS). Therefore, the payments received by AWS cannot be termed as royalties within the meaning of Article 12.3 of the India-US DTAA.
Essentially, the judgment of the Delhi High Court confirmed the abovementioned stance of tech companies, i.e. that in the absence of any control over the underlying infrastructure, as also in the absence of any copyrights being provided in the underlying works, the respective payments received from customers are not taxable.
Thus, US-based companies and other tech companies providing cloud computing services in India are to save millions of dollars in taxes following a high court ruling in favour of AWS, provided the India tax office will not appeal against the above decision to the India Supreme Court or such appeal is to be rejected.
Doing business and/or have assets in several countries and want to minimise your tax liability in an interconnected way to avoid unnecessary taxation? Call us (+442039741244) or write to us at any time (office@bensonformations.com).
