Satellite Fleet Operators Protest Indian Tax Proposal

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PARIS — A group including many of the world’s biggest commercial satellite fleet operators has written the Indian government to protest a proposed new tax that would slap a 10 percent royalty fee on foreign satellite communications services and make the fee retroactive to cover the last 36 years.

The group says the new tax, if approved by India’s parliament as part of a broad Indian government search for ways to reduce the government deficit, will cripple Indian broadcast and other communications at a time when India faces a shortage of domestic satellite bandwidth.

In a letter dated April 2 and sent to Indian Finance Minister Shri Pranab Mukherjee, the 130-member Cable and Satellite Broadcasting Association of Asia (Casbaa) says the rule’s retroactive feature “is against the basic international rules and principles of fair play.”

India’s Finance Bill 2012 would characterize fees paid to non-Indian satellite operators as a royalty subject to a minimum 10 percent withholding that would be forwarded to Indian tax authorities.

Casbaa says international tax treaties have refused to class satellite communications services as a royalty, which means the satellite operators cannot be permitted to claim a tax credit in their home countries. Casbaa says this is equivalent to double taxation and would put India in breach of tax treaties that the Indian government has signed.

Even more striking, Casbaa says, is the retrospective nature of the proposed law that would claim the 10 percent withholding for payments made since 1976, the year that this section of India’s tax law first addressed foreign royalty payments.

Casbaa says the tax amendment would merely clarify the royalty definition and make it applicable to transactions back to 1976, but that certain concepts in the proposed amendment — including conversion for downlinking of any signal — barely existed in India in the 1970s.

“[I]t is inconceivable to think that a concept that did not exist in 1976 was intended to have been present” in the original legislation,” Casbaa says in its letter, signed by the association’s chief executive, Simon Twiston Davies.

Hong Kong-based Casbaa’s members include many of the world’s largest satellite fleet operators including Intelsat of Washington and Luxembourg, SES of Luxembourg, Eutelsat of France, Sky Perfect JSat of Japan, AsiaSat and Asia Broadcast Satellite of Hong Kong, Measat of Malaysia and Thailand’s Thaicom.

Most of these companies have spent years trying to clear the regulatory barriers to providing satellite bandwidth in India. The U.S. Trade Representative, among others, has repeatedly criticized India’s regulatory regime as being in contravention of India’s World Trade Organization obligations.

Bit by bit, India has opened its markets as pressure from Indian direct-broadcast television providers has increased for more Ku-band capacity to serve India’s growing market, which in 2011 surpassed the United States as the biggest satellite-television market in the world, with some 40 million subscribers.

In addition to satellite television, India’s cellular networks use satellite bandwidth to provide backhaul from remote locations to the telecommunications grid for the nations’ more than 800 million cell phone subscribers.

Casbaa says its members now represent about 54 percent of the total satellite bandwidth used by or on behalf of Indian media and corporate customers.

The Indian Space Research Organisation (ISRO) is India’s space agency and also its provider, through ISRO’s Antrix arm, of commercial bandwidth aboard India’s Insat series of telecommunications satellites. Non-Indian satellite operators must go through ISRO to sell into the Indian market, making ISRO but the market referee and market participant.

India’s tax treatment of revenue derived from foreign satellites has been a subject of dispute for several years. India’s Delhi High Court in early 2011, in a case brought by AsiaSat, ruled that the transponder fees should not be classed as royalties. SES, Intelsat and Thaicom subsequently won similar rulings in Indian courts.

Indian tax authorities have since appealed these decisions to the Supreme Court of India, which has yet to rule on the issue.

Casbaa says that, faced with a 10 percent withholding that cannot be compensated by a credit in their own tax homes, foreign satellite operators active in India will be forced to pass on the royalty withholding to their customers.

Because India is facing a shortage of satellite capacity as a result of ISRO’s regulatory practices and the inability of India’s domestic satellite system to keep up with demand, “Indian companies have no alternative but to rely on services offered by international operators,” Casbaa says. “It will not be possible to evade the inflationary effects of the bill’s proposals.”

 

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