Foreign investors set to get off Rs 40,000 crore MAT hook
According to the CBDT communique, foreign investors and companies will not be liable to pay MAT prior to April 1, 2015. According to estimates, foreign investors have to pay tax of Rs 40,000 crore for the 14-year period since April 1, 2001, when MAT was introduced.
Foreign investors and companies in India are set to finally get rid of the minimum alternate tax (MAT) bugbear, which may have required them to shell out tax dues of Rs 40,000 crore.
The central government is planning to amend the MAT provisions under Section 115JB of the Income-Tax (I-T) Act, 1961 in the upcoming Budget session to exempt foreign portfolio investors (FPIs), foreign institutional investors (FIIs) and foreign companies from retrospective payment of the tax.
“The government has accepted the recommendations of the committee on direct tax matters that Section 115JB be amended to clarify the inapplicability of MAT to FIIs/FPIs having no permanent establishment or place of business in India. The amendment in this regard shall be undertaken through Finance Bill, 2016,” the Central Board of Direct Taxes (CBDT), in an internal communication to the I-T department, said.
dna has a copy of the CBDT letter sent on December 23. MAT is an 18.5% tax levied on profit-making entities (domestic and foreign), which do not pay corporate I-T because of exemptions and incentives.
According to the CBDT communique, foreign investors and companies will not be liable to pay MAT prior to April 1, 2015. According to estimates, foreign investors have to pay tax of Rs 40,000 crore for the 14-year period since April 1, 2001, when MAT was introduced.
But the tax department had only sent notices in 68 cases to FIIs for payment of dues worth Rs 602.83 crore in April last. According to the CBDT letter, MAT will not be applicable to a foreign company (including FIIs and FPIs), which has no permanent establishment in India, but has a double-taxation avoidance agreement (DTAA) with the country of its origin.
It is also not applicable to those foreign firms with which India does not have DTAA and such companies are not required to seek registration under Section 592 and Section 380 of the Companies Act.
A senior tax official told dna, “The amendment in law is required to put an end to the issue. The assessing officer can do assessment on the basis of prescribed law. However, the CBDT has advised I-T officials to go ahead with the pending assessment involving applicability of MAT on foreign companies in accordance with the decision of the government.”
Gautam Mehra, partner in PwC told dna, “It is good that the government has specified the category of exemption with regard to FII registration. But there is still uncertainty with respect to FPIs or FIIs which are investing from treaty-countries but not residents of the respective country.”
The I-T department had demanded MAT from foreign investors on capital gains accruing to them from the sale of shares, citing an August 2012 order by the Authority for Advance Rulings in the case of Castleton Investment Ltd that MAT is applicable on both domestic and foreign companies. Castleton Investment is a Mauritius-based foreign company which has no PE (permanent establishment) in India.
The tax demand last year spooked the markets, which feared FII pullout, but the situation was assuaged with the government setting up a committee under law commission chairman A P Shah that recommended non-applicability of MAT for previous years.
Following the Shah committee recommendations, the government, on September 24, cleared its stand saying that MAT would not apply to FPIs/FIIs or foreign companies which have no establishment in India.
