FinMin Further Softens MAT Blow
Exempts Foreign Companies Without Permanent Base in India With Effect From April 2001
After clearing the air on Minimum Alternate Tax (MAT) on foreign portfolio investors (FPIs), the finance ministry has decided to exempt foreign companies with no permanent establishment (PE) in India from this tax with effect from the 2001-02 assessment year. This will pave the way for a relief in favour of Mauritius-based Castleton from the Supreme Court so far as MAT is concerned, experts said.
The ministry will propose an amendment with retrospective effect to Section II5 JB of the Income Tax Act, in this regard. The move came after Finance Minister Arun Jaitley promised investors at a gathering last week that pending tax disputes would be resolved soon.
The decision was announced on Thursday at a time when Prime Minister Narendra Modi is in the United States and will interact with top CEOs and the Indian diaspora in Silicon Valley.
“We have announced clarity on non-applicability of MAT on foreign companies other than FII not having PE today. We hope this will boost investor confidence,” Revenue Secretary Hasmukh Adhia tweeted.
In a statement on Thursday, the ministry said the government had decided that with effect from the said date, the provisions of 115JB (MAT) would not apply to a foreign company on two conditions. One, being based from a country having a double tax avoidance agreement (DTAA) with India and not having a permanent establishment here.
Two, based from a country not having a DTAA with India and not required to seek registration under the Companies Act.
This means companies not having a permanent establishment or place of business in India would not come under MAT with effect from April 2001.
Then finance minister Yashwant Sinha had got the MAT provision changed from assessment year 2001-02, making it simpler through 115JB of the I-T Act, instead of the earlier 115JA.
The decision was announced after close of the stock markets.
The ministry will propose an amendment with retrospective effect to Section II5 JB of the Income Tax Act, in this regard. The move came after Finance Minister Arun Jaitley promised investors at a gathering last week that pending tax disputes would be resolved soon.
The decision was announced on Thursday at a time when Prime Minister Narendra Modi is in the United States and will interact with top CEOs and the Indian diaspora in Silicon Valley.
“We have announced clarity on non-applicability of MAT on foreign companies other than FII not having PE today. We hope this will boost investor confidence,” Revenue Secretary Hasmukh Adhia tweeted.
In a statement on Thursday, the ministry said the government had decided that with effect from the said date, the provisions of 115JB (MAT) would not apply to a foreign company on two conditions. One, being based from a country having a double tax avoidance agreement (DTAA) with India and not having a permanent establishment here.
Two, based from a country not having a DTAA with India and not required to seek registration under the Companies Act.
This means companies not having a permanent establishment or place of business in India would not come under MAT with effect from April 2001.
Then finance minister Yashwant Sinha had got the MAT provision changed from assessment year 2001-02, making it simpler through 115JB of the I-T Act, instead of the earlier 115JA.
The decision was announced after close of the stock markets.
| Folding up the welcome MAT |
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A case relating to Castleton Investment is pending in the Supreme Court and is scheduled to come for hearing by this month-end. The case, among other legal issues, relates to applicability of MAT on Castleton, as it transferred its 3.77 per cent of GSK India to Singapore GSK Pte, which is also part of the GlaxoSmithKline group but incorporated in Singapore.
Earlier, the Authority on Advance Rulings had ruled that MAT was applicable on Castleton.
A finance ministry official said,"We will be putting forward the latest clarifications by the government (in the SC). Unless Castleton decides to withdraw the case, it will go on. There are many legal issues raised in Castleton; this was only one of these. But, as far as MAT is concerned, it will not be applicable to the company."
The ministry has already accepted the A P Shah committee report which suggested that past cases of MAT on FPIs be withdrawn. The ministry would also introduce amendments to Parliament for giving effect to these.
Shah, former Law Commission chairman and head of the committee on past cases of MAT on FPIs, had told Business Standard a foreign company which doesn't have a PE or a place of business in India will also not be liable to pay MAT, as the panel's reasoning is based on reading of the law (http://www.business-standard.com/article/economy-policy/fiis-without-permanent-establishment-in-india-should-be-exempt-from-mat-a-p-shah-115090300027_1.html).
The Central Board of Direct Taxes has already issued instructions to field officers not to pursue past notices slapped on FPIs. This year's Union Budget had announced there would not be any MAT on FIIs from the current financial year.
As such, there will not be any follow-up action on the 68 notices sent to FIIs on past MAT cases, with a combined tax dispute amount of Rs 603 crore.
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