'Make available' clause in tax treaties

Tax treaties deal with allocation of taxation rights. Under treaties between OECD countries, passive income is generally taxed in resident State. On the other hand, developing countries have always tried to tax passive income in the source State.

The "make available" clause in a tax treaty is designed to clarify the conditions under which technical, managerial, or consultancy services are taxed by the source country when provided by a resident of the other contracting state. The "make available" clause applies to technical services, where a provider from one country supplies services to a recipient in the other country. For the source country to impose tax, the services must impart knowledge, skills, or expertise to the recipient, enabling them to apply the skills independently in future without needing the service provider’s assistance.

The clause is typically used in Article 12 (Fees for Technical Services) of many tax treaties. It provides an exception to source taxation if the services do not meet the “make available” requirement. For example, if a service is a one-time activity (like a repair job) that doesn’t transfer technical knowledge, it might not meet this criterion. By limiting source country taxation, the "make available" clause aims to prevent double taxation and encourage cross-border service trade by defining when fees for technical services are subject to withholding tax. To apply the "make available" clause, tax authorities often assess the nature of the service and its impact on the recipient's ability to apply the knowledge independently. Each treaty may have specific interpretations and thresholds for this clause, so referring to the specific treaty language is essential. India’s treaty with the US, the UK and Canada (and some other treaties) requires the ‘make available’ clause to be satisfied for taxing FTS.

Judicial pronouncements:

The Bombay high court held in Shell India Markets Private Limited that provision of general Business support services is in the nature of advisory services and does not satisfy 'make available' test. Thus, no WHT would be applicable.

Where assessee, Maersk Logistics, a Netherlands based company, was engaged in the business of logistics and freight forwarding across the globe and received network fees from its Indian AE, since assessee did not make available any technical know how to its Indian AE, network fee would not be in nature of royalty or FTS and would not be subject to tax under India-Netherlands DTAA. (Maersk Logistics & Services International B.V. – Mumbai ITAT

Charles River Laboratories was engaged in rendering pre-clinical laboratory services to enable determination of safe dose and assess potential toxicity of new drugs prior to human clinical trials by way of conducting in vitro and in vivo tests and trials. As per the arrangement, on receiving report from the non-resident entity, the Indian customers might use it for commercial or technical knowledge to evaluate product and material, but that report was not meant to transfer technical knowledge to customers and the report did not contain any information that would enable clients to carry on clinical test on new products in future on its own accord i.e. independently. Hence, make available clause is not satisfied. (Delhi ITAT)

Assessee, pharmaceutical company, made remittances to parties in USA and Canada for clinical trials. As there was no transfer of any skills or knowledge to assessee by issuance of study reports, it was held that 'make available' clause was not satisfied and thus, said services would not qualify for FTS/FIS. (Cadila Healthcare – Ahmedabad Tribunal)