Taxpayers from France, Swiss corporations can not declare low tax profit by citing tax treaties with different OECD members


Indian arms of corporations from France, Netherlands would no longer be eligible for low tax charge of 5% whereas remitting dividends to their abroad dad and mom. India’s apex direct taxes physique Thursday mentioned taxpayers from these international locations can not apply the advantages obtainable underneath tax treaties with entered into by India with Columbia, Slovenia making use of probably the most favoured nation clause.

Nations together with France, Switzerland, Netherlands, lately, affirmed that withholding tax in India shouldn’t exceed the speed prescribed underneath the treaties with Columbia, Slovenia and so forth, which is at decrease charge of 5%, in opposition to the common tax charge of 15%.

The Central Board of Direct Taxes, in a round, mentioned that Lituania and Columbia turned members of OECD after signing the tax treaty with India and subsequently these treaties couldn’t be utilized to all international locations.

It mentioned unilateral decrees, issued by these international locations (France, Switzerland and Netherlands), stating that they may avail low tax relevant as a result of MFN was a merely a mirrored image of the understanding of the respective international locations and didn’t affirm India’s place on this matter.

The CBDT mentioned that India reserves its proper to use withholding tax on the charges prescribed underneath the respective tax treaties and treaties with Columbia, Slovenia and could possibly be topic to widespread interpretation.

It added that import of concessional charges by invoking MFN clause can’t be accomplished selectively and the good thing about decrease charge or restricted scope of supply taxation will probably be obtainable solely when the situations specified within the Round are met.

Consultants declare that this may have a bearing on Indian arms of corporations based mostly in these international locations and had been engaged in litgation with Indian tax authorities.

“This assumes significance as there have been latest Excessive Court docket rulings in favor of the taxpayers on this challenge which upheld the applicability of decrease withholding tax charges utilizing the MFN clause based mostly on the precept of widespread interpretation. Although the Round clarifies that present rulings already rendered in favor of the taxpayer wouldn’t be affected, taxpayers staking refund claims or looking for to acquire decrease withholding tax certificates would stand impacted by this Round,” Sudin Sabnis, Associate, Nangia Anderson LLP mentioned.

He added that many excessive courtroom rulings had additionally being appealed by the Income within the Apex Court docket and this Round might give a brand new dimension on whether or not the interpretation in unilateral decrees of Netherlands, France actually mirrored a typical interpretation.

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