Where the assessee conducted sophisticated and technical bioanalytical tests for its clients but did not reveal to them as to how it conducts those tests or the inputs that have gone into it, so as to enable them to carry out those tests themselves in future and the question arose whether the fees received for such services could be assessed as “fees for technical services” or as “royalty” under the India-Canada DTAA, HELD

 

(i) In order to consider the meaning of the term “make available” in Article 12 of the India-Canada DTAA, one can have regard to the India-USA DTAA. The term requires that the service provider should also make his technical knowledge, experience, skill, know-how etc., known to the recipient of the service so as to equip him to independently perform the technical function himself in future, without the help of the service provider. In other words, payment of consideration would be regarded as ‘fee for technical / included services’ only if the twin test of rendering services and making technical knowledge available at the same time is satisfied.

 

(ii) On facts, as the tests carried out by the applicant did not enable the applicant’s client to derive requisite knowledge to conduct the tests or to develop the technique by itself, it could not be considered to “make available” technical knowledge, skill etc to the payer;

 

(iii) The fees were also not chargeable to tax as “royalty” because the applicant used its experience and skill itself in conducting the bioequivalence tests, and provided only the final report containing conclusions to its clients and the information concerning scientific or commercial experience of the applicant or relating to the method, procedure or protocol used in conducting bioequivalence tests was not imparted to the clients.

 

(iv) what distinguishes a contract for provision of know-how from a contract for rendering advisory services is the concept of ‘imparting’. An adviser or consultant, rather than imparting his experience, uses it himself. All that he imparts is the conclusion that he draws from his own experience.

 

See Also: Diamond Services International Ltd. vs. UOI (Bom)

We have posted before about the troubles of contract research firm SFBC International We started by posting about allegations that private, for-profit clinical research firms, including SFBC International, supervised by for-profit institutional review boards (IRBs), were doing sloppy and shoddy work. We then noted allegations that SFBC International had tried to threaten or intimidate research subjects who talked to reporters about such poor research practices. Furthermore, we discussed how a review commissioned by the company found that a top executive, Jerry Seifer, SFBC International's Vice President for Legal Affairs, threatened participants in clinical studies who had talked to the press with deportation. Seifer, it turns out, had been the subject of past regulatory sanctions by federal regulators. In addition, study participants in a trial of an immunosuppressant drug carried out by the firm's Canadian subsidiary, SFBC Anapharm, acquired tuberculosis after exposure to another participant with active disease, despite their complaints to Anapharm staff. Most recently, we noted that Seifer had resigned, and the company's stock price had fallen.

There is an update on the human consequences of SFBC International's (mis)management of clinical trials. 20 people have contracted latent tuberculosis after being exposed to a patient with active TB during a trial of an immunosuppressant agent at SFBC International's SFBC Anapharm Canadian testing facility, according to CTV. Bloomberg News noted that 11 were employees of the company, while the remainder were patients in the study. CTV suggested that all would have to undergo nine months of therapy (presumably to suppress their latent TB and lower the likelihood it would become active in the future.) An investigation by Health Canada is ongoing. Bloomberg news could not get officials of SFBC International nor of Isotechnika, which made the trial drug, to comment.

CTV interviewed Professor Trudo Lemmens of the University of Toronto, who summed up the major issues.
The pharmaceutical industries want to have drugs on the market and they want to have them on the market quickly.
So they contract research organizations to do the human subject research for them. These companies are paid for the outcome, which is to have the trials done as quickly as possible, and so they have significant financial incentives to recruit human subjects and research them very quickly.
Lemmens also noted that commercial ethics board may not do a good job policing such trials.
While many may be doing a good job, it's possible in the current regulatory system to shop for the most convenient, the fastest and the perhaps most lenient research ethics boards which imposes the least restrictions on your clinical trial.
In response to this case he suggested,
The current Quebec situation underscores the need for the creation of a watchdog to oversee the industry, as well as stronger federal and provincial regulations to establish guidelines and requirements for research ethics boards, Lemmens said.
It sounds like parallel solutions are needed in other countries.

Sadly, this case provides yet another reminder about how skeptical we must be about much of the clinical research now going on that is financed, and now often performed and supervised by loosely regulated corporations. And that is coming from a proud supporter of evidence-based medicine who has long advocated for clinical research, and who put my money where my mouth is by signing up as a trial subject. This sort of story really hurts.