Coursera and FTS: The Make Available Test Under the India-US DTAA

Cross-border services are classified under tax treaties, and that classification drives the tax multinational companies pay. One question comes up again and again. Do payments that non-residents receive from Indian customers count as Fees for Technical Services (FTS) under the applicable Double Taxation Avoidance Agreement (DTAA)? The answer changes the tax treatment. It changes both how much tax is due and where it is paid.

The Delhi Income Tax Appellate Tribunal (ITAT) has now ruled on this question in the Coursera Inc. case. The facts there are specific to Coursera. The consequences reach much further, to the many digital and online service providers that operate across borders. This article sets out how the FTS classification works in law. It focuses on the tests laid down in Indian tax law and in the India-US DTAA, and it draws on the case law that applies them.

What are the components of technical service fees (FTS)?

Indian tax law defines Fees for Technical Services as payments for any managerial, technical or consultancy service. The definition sits in Section 9(1)(vii) of the Income Tax Act, 1961. It covers services that call for substantial knowledge, skill or expertise. It covers services delivered by people and services delivered through technology. Either way, the service must give the recipient a measure of technical knowledge or expertise.

Article 12(4) of the India-US DTAA introduces a narrower idea, Fees for Included Services (FIS). For a service to count as FIS under the treaty, two conditions must be met:

§  Technical knowledge, experience, expertise, know-how or processes must be built into the service.

§  More importantly, the service must leave the recipient able to use that knowledge, experience or skill on their own in future. They must not need further help from the provider.

This "make available" clause is what separates FIS from the wider FTS definition. A payment counts as FIS only when the recipient can do two things. They must be able to use the knowledge or skill they were given. They must also be able to finish the task on their own, using it.

How that clause is read decides whether a payment is FTS or FIS. Indian tax authorities and tribunals have held this consistently (India-UK DTAA ruling in IMG case). Simply providing a technical service does not satisfy the make available condition. The recipient must be able to use the technical knowledge, know-how or skill on their own. That must be shown clearly.

Indian tribunals have said the same thing many times. The condition is met only when the recipient gains real knowledge or experience from the provider. The gain must be enough for them to work independently, with no further input from the provider. That reading fits the purpose of the India-US DTAA. The treaty exists to prevent double taxation and to set clear limits on what counts as a taxable technical service.

How the Coursera Inc. Case Applied the Test

The recent ITAT decision in the Coursera Inc. case shows how these principles work. Coursera Inc. is a US-based company. It ran an online learning portal. The portal gathered educational content produced by many universities and companies. Coursera charged Indian customers a fee and gave them access to that content. The question was how the fees should be classified. Were they FTS under Indian tax law, or FIS under the India-US DTAA?

The ITAT found that Coursera acted as a facilitator. It offered a platform that hosted content developed by third-party institutions. Coursera's role was mainly to give access. It did not impart technical knowledge or skills, because the organisation had not developed the content itself.

Coursera's services were largely automated and needed little human intervention. That fact supported the argument. Coursera was not offering technical or consultancy services directly to its customers.

The ITAT stressed that a service counts as FIS only if it gives the recipient technical skills or knowledge. Nothing of that kind passed to the Indian clients in the Coursera case. Nothing the platform passed on would have let them carry out the service on their own. The platform gave users access. It did not give them what they would need to replicate or continue the process themselves.

The decision sits alongside many other Indian precedents:

§  In Elsevier Information Systems GmbH v. DCIT, the payments were for access to a scientific database. They were not treated as FTS. The provider had not given users the knowledge or skills to access the database on their own. The tribunal held that the payments were for access to a copyrighted article. They were not for the use of copyright, and not for technical services.

§  Relx Inc. v. ACIT: the ITAT followed the Elsevier case. Giving access to a database is not a technical service unless the make-available condition is met. That condition requires the recipient to be able to use the technical knowledge on their own.

The pattern across these cases is clear. Ordinary access to data, content or information is not FIS. It becomes FIS only where technical know-how clearly passes to the recipient.

Consequences for Online and Digital Service Providers

The Coursera decision is a substantial precedent for online and digital service providers. It shows why tax authorities will look closely at what a service actually is. The question for them is whether the service truly meets the tests in the tax treaty. The make available test in the India-US DTAA matters most.

For organisations that run online platforms, databases or third-party content, the main lesson is this. Their services are unlikely to be treated as FTS where:

§  The services are automated and require minimal human intervention.

§  They do not give the recipient the technical knowledge, experience or skills to carry out the work on their own.

§  The provider's main job is to facilitate, for example by hosting or giving access to content that already exists.

In conclusion

Multinational companies that buy or sell cross-border services have to apply the FTS and FIS provisions in treaties such as the India-US DTAA, and the India-Oman DTAA protocol. The Coursera Inc. decision helps here. It makes clear that facilitating access to content, on its own, is not a technical service. Tax authorities and multinational enterprises must both examine the nature of the service itself. The key question is whether the service really gives the recipient technical knowledge or skills.

Companies that understand these distinctions can shape their operations around the rules. That supports both their global tax position and their compliance. These readings will also shape the tax landscape for international business as digital economies keep growing.