The Supreme Court in India has ruled that Formula One World Championship Ltd has a permanent establishment for its business in India and therefore income accruing from it is taxable. An assessment officer will now assess what the company will have to pay.
The Jaypee Group organised Formula 1 car races in Greater Noida between 2011 and 2013, but the five-year contract with Formula One Management (FOM) was not fulfilled because the race was cancelled in 2014 because of a tax dispute with the Uttar Pradesh government. The Delhi High Court ruled last year that a payment made by the promoters for the use of FOWC logos and symbols to promote the Grand Prix could not be considered a royalty and be taxed as such.
This pretty much guarantees that Formula 1 will not be returning to India any time soon, as the bureaucracy involved makes the race untenable. Indian fans will thus have to wait until the red tape folk catch up with the rest of the world – and that could take a long time.
joeblogsf1 
based on my experience of having daily business interactions with india, i can confirm that there is noting that they love more than paperwork (aside from the art of making ‘alternative arrangements’ to avoid it). this is how much business is conducted there.
I’m really curious how Indian tax authorities shall try to enforce payment of this tax by FOWC.
Guess laws are laws? When in Rome etc….the Promoter would be at fault for not covering all the bases so one can hardly blame the Courts!
Well, there are laws, and there is moving the goalposts .
As I recall, F1 left India because local authorities made up rules and regulations just for the hell of it .
The concept of a Permanent Establishment is pretty clear in international tax. If no other country deems this arrangement to be a PE, then the chances of India being right and all the rest of the world being wrong is pretty remote.
yeah its sad for the us the fans…there’s a lot out there…probably India just wasn’t ready for it. I feel they should have gone for a street race in heart delhi with government backing. The areas near Rajpath or India gate would have been a pretty impressive place to hold a street race. At least they built the track maybe in future things will change.
Corruption….money grabbing….and promoting oneself as an inward looking society. This is what India has always been if we look through all the illusions and fog that portrays the supposed greatness of their society. Glad I left….- An Ex-Indian.
Pity. But perhaps a the return of a Grand Prix to sensible, non taxash-grabbing places such as Holland, San Marino or Argentina might be considered?
Argentina, clean? You must have had to much time in the sun today!
Why should FOM not pay taxes?
If they were running charity or not for profit organization like most sports there would be no taxes.
That’s not the point, is it? Play by their rules or don’t play. End of story.
Joe
Is Formula One World Championship Limited an FOM owned company?
Yes
/Why should FOM not pay taxes?/
I think you should read carefully – it is FOWC that is expected to pay, not FOM (the latter pays taxes in UK).
And you might take into consideration that in other countries where F1 races are held, they pay taxes on royalties they receive and not on promoters’ incomes (as this seems to be the problem here).
FOM is a subsidiary of FOWC
/FOM is a subsidiary of FOWC/
Thus a different entity.
Having reconsidered the case, I believe that contract could have some clause regarding this risk and promoter might have been obliged to pay any tax that might be demanded – directly to tax authorities or to FOWC. That’s what Bernie’s lawyers were for…
Well, Sudev, the question is not really whether FOM (or any such event or sport) should pay taxes. It is rather a question of where and when.
Off course India can have this kind of handling things. It is their right to do so, based on their views of how to go about things.
But the whole administration of it, as well as having to potentially give guarantees, or risk having goods impounded while authorities wait for settling of any claims, makes it a risk and a burden for a promotor like FOM. Much the same goes for concerting musicians, I know that some of them avoid certain countries or shorten their tours there, to avoid having to go through this process.
So while it certainly is India’s right to decide to handle things this way, it is also something that will limit the willingness of some sports (or entertainment as F1 was judged to be treated) to come to the country. So F1 is not coming back until they change the rules.
It is up to India whether they are bothered by that or not. I guess having a prominent Indian in F1 making such a mess of how he handled his finances (Mallya, to an extent Sahara too, his name was on the cars for long enough!), does not do F1 any favours in how the sport (or entertainment) is seen.
No it’s not. If you want a race you play by FOWC rules. If you don’t you don’t get a race. It is really very simple
Well it is their country!
…how selfish can you get!
It is because of “Article 5(1) of the India-U.K. tax treaty (the tax treaty).”
Source: http://www.in.kpmg.com/taxflashnews/KPMG-Flash-News-Formula-One-World-Championship-Limited-2.pdf
I agree India can benefit hugely from having F1 races in India.
F1 isn’t coming again
Yes not surprised by this at all Joe. Having spent much of the last three years working in India (about a week to 10 days every month), there is a culture of always trying to get the best out of a what ever is on the table that day rather than looking at the longer term strategy and maximising long-term returns (c.f. Japan). It is why the infrastructure is so poor and the other things already mentioned in this blog are so wide spread. Its very disappointing for the country and as you say F1 will not return anytime soon! F1 should be in countries where there is a passionate fan base and either a history of engineering excellence or at least engineering excellence should be developing.
Or just parts of the world where graft and corruption aren’t practices by literally everybody in the organization. At least Putin and his pals aren’t standing at the airport in Sochi asking new arrivals for protection money. They’ve already got paid via legitimate (LOL) contracts and suchlike.
Joe, are F1 races at every other country tax exempt?
The whole thing is very silly and sad because the government did not recognize motorsport as a sport then. International sporting events do get tax exemption here, like the ICC Cricket WC in 2011.
Also, the red tape is still not over..
“It would be for the Assessing Officer to adjudicate upon the aforesaid aspects while passing the Assessment Order, namely, how much business income of FOWC is attributable to PE in India, which is chargeable to tax.”
I wonder how they are going to arrive at the income generated…
Hmmmnn… It’s an interesting topic, but I’m not sure I have all the information I need to decide which side I fall on or agree with…
There is no doubt in my mind (despite never visiting India, but having read MANY similar accounts) that the Indian authorities have a love of bureaucracy, regulations and required fees/charges… possibly picked up or exacerbated under their rule by Victorian England in centuries past? Which can sometimes be avoided by re-arranging the exact nature of the transaction, or bribes…
And I’m also aware that large international conglomerations (like F1, Apple, Google, Facebook, etc.) are under increasing pressure from every country they operate in, but don’t pay local taxes because they can “off-shore” the profits to tax-friendly locations… To cough up and pay their share, to help the societies they take money from, operate in a fair and equitable manner….
Frequently, these large international companies eliminate any local profits (to avoid local taxes) by the use of similar “licensing” and “intellectual property” charges from one part (overseas in a low-tax environment) of their company back to the local (high local tax) part of the company…
Which one is going on here? Maybe a bit of both? Are the Indian Authorities just being beaurocratic and obstructive? Or are they simply standing reasonable ground where others have caved in?
As Joe and many others have reported, the Indian authorities tried very hard to make the Indian GP a miserable affair from all angles. Just reading about attempts at getting a passport convinced me it wouldn’t be worth it. Now the national government is trying to tax a business that was effectively hamstrung and run out by smaller regional and local governments after failing to provide any of the mechanisms government is expected to have on hand to assist businesses in…doing business.
The culture of corruption cannot be dismissed in this run of affairs, you’ve got a general feeling that enough people didn’t get enough kickbacks for their failed efforts and so they’re reaching into the grave of the GP to rummage around for leftovers. Good Riddance, as far as I’m concerned, now let’s see what happens to the race is Azerbijan.
While they’re at it they might like to rule that all Indians who own/are principals of F1 teams be liable for total FOWC tax, just to spoil Mallya’s breakfast (as if things were not bad enough already)
Who is “Formula One World Championship Ltd” and does it have any business relationship to FOM?
It is the parent company
I had not seen the precise combination of words “Formula One World Championship Limited” before, so I had a look at Companies house and am now thoroughly confused.
FOWCL had only one share issued value £1 and it was owned by SLEC upto and including March 2016. Then it appeared to be owned by Alpha Prema UK Ltd as of 03/04/16 and re confirmed on the 07/03/17.
Bernie and three other directors were terminated on 23/01/17
Alpha Prema UK Ltd is another one share £1 company the share being owned by Alpha D2 Limited. though this is superseded by a resolution of 22/02/17 inferring Beta D3 Limited to be sole owner, this in turn originally appeared to be owned by Delta 2 (LUX) SARL. No mention of Liberty or Alfa Topco or FOM (except in the FOWCL accounts as a “fee”. Delta 2 (LUX) SARL this however listed as a subsidiary of Delta Topco. Delta Topco is the holding company of Delta Bidco a travel company! (Loosing money)
Formula One Limited now appears to be owned by Sasha as sole shareholder; mind you the company was dormant.
The Indian authorities would be ecstatic to dive into that lot.
Any news of VJ? Since he was given bail after his court appearance for the repatriation, one wonders what is going on.
I’m not surprised. I have mentioned on here previously that a company I have shares in, Cairn Energy were hit by a retrospective tax demand for a period in which they had paid all taxes due. Several years later the Indian give decided to retrospectively hike the rates. India must be a very difficult place to do business. Yes it their country – and they can keep it! I’m not surprised that Vijay Mallya is glad to be out of there 😉
Hi Man. what do You do in Ireland?, maybe we can help ? i mean with installations, maintenance, etc – no secret here – mail to kardaans@gmail.com if any interest. P.s. Sorry Joe i’m using your blog improperly.
this is funny, isn’t it? 4 years after last event! Four! Are they going to tax East Indian Company and Vasco da Gama next? i.e. i guess they staged some entertainment events as well, like chariot or horse races, didn’t they. P.S. this is not a stone to India, but just i find it rather strange at this stage.
In the top echelons of Indian ruling society, the attitude has
long been…..’if this is a home grown entertainment business
which becomes popular with the masses, then we will tax
it only as heavily as is compatible with it’s continuing to thive’.
‘If it is a foreign, or even worse western, business and shows
signs of demonstrating huge potential earnings in India, we will
modify whatever taxation rules exist so as to tax every aspect
of this activity till the pips squeek !’
The idea of allowing the foreign goose laying the golden eggs
to continue to produce it’s bounty is entirely anathema. If it
wasn’t an Indian invention we’ll destroy it !
Very correct Trotsky….after all the cricket world cup and champions trophy, hockey WC and champs trophy and commonwealth/Asian games are all examples of homegrown Indian sports. (Sarcasm)
The fact is the large majority of Indians don’t even know what F1 is. There isn’t a huge motorsport culture in India. It never made sense for F1 to come here or for the promoter to stage that event. It didn’t work as a tourist attraction like Singapore nor did it work as a boost to local motorsport (wrong part of the country)
While the authorities have botched the handling, I agree with the final decision. You cannot consider a glamorous money hungry sport like F1 to be relevant and tax subsidized in a country where basic infrastructure is a bonus.
WE Want Formul a 1 in INDIA
Change the government