Revenue shared with franchisor by the franchisee is considered as Royalty or not?

[Bruce]

A company ABC registered in the USA grants franchise rights to an Indian company XYZ to operate under the ABC brand. Initially, XYZ pays royalty under RCM for using the ABC brand name.

The agreement also provides that XYZ will pay ABC(USAT), a monthly percentage of the total revenue generated, under a revenue sharing arrangement.

My query is:

1. Should this revenue share be treated as part of royalty (import of services) and taxed accordingly, or

2. Would taxing it result in double taxation?

Given that the agreement mentions (i) an initial lump-sum fee for use of the brand name, and (ii) monthly revenue sharing, does the revenue share also form part of "royalty" or not?

Experts, your opinion please.

AI Summary

Royalty on franchise revenue share may attract GST under reverse charge when tied to brand licensing and use rights.
Revenue sharing paid by a franchisee to a foreign franchisor for continued use of a brand, trademark, know-how, or business model may form part of royalty and be taxable as import of service under the reverse charge mechanism. Royalty is not limited to a lump-sum fee and may also include a variable percentage of revenue where both payments are for the same franchise or brand licensing service. Taxation of both components is treated as tax on separate parts of the same consideration, not double taxation, unless the payment is genuinely unrelated to brand rights or forms a pure profit-sharing arrangement.