No MAT for ‘Foreign Companies’ – Shah Panel suggested in revised report
Three-member AP Shah Committee has recommended extending minimum alternate tax (MAT) relief to foreign companies which do not have permanent establishment or public business in India.
In an earlier version, the committee had sought to restrict MAT to foreign institutional investors and foreign portfolio investors. The committee had also not expressed any opinion about foreign companies in earlier report submitted on 24 July 2015.
The Shah Committee has revised earlier report and resubmitted it on August 25, 2015. In the revised report accessed by dna, the committee made the amends and included foreign companies.
dna had earlier reported that there is an ambiguity in the Shah Commission report over foreign companies. The Central Board of Direct Taxes (CBDT) noticed it and requested the Shah Committee to revise the report and make amends.
A finance ministry official said it would make the revised report official in a couple of days. Now foreign investors as well as companies will not be liable to pay minimum alternative tax prior to April 1, 2015. Under the tax law, both – foreign investors and foreign companies – are different entities.
The revenue department will now take the new MAT rules to the Supreme Court in Castleton Investment Ltd case, arguing that these new MAT rules may be accepted.
The hearing is due by September end.
Mauritius-based Castleton Investment Ltd had filed special leave petition (SLP) against Advance Authority of Ruling (AAR) in the Supreme Court in May 2013. After a two-year gap, Castleton Investment Ltd pursued this case. But government was in dilemma over the Shah Committee’s earlier recommendation, which was limited to FPI/FII issue only.
Tax authorities wanted to collect minimum tax at 18.5% on capital gains which arise from share transfer by foreign investors. Foreign investors argued that they are not liable to pay this minimum tax due to special treatment under double taxation avoidance agreement in case of Mauritius. Though Budget 2015 has exempted them to pay minimum tax on capital gains from April 1, 2015, foreign investors want the exemption to apply from retrospective date. The government then constituted the three member committee to review the issue.
Castleton, incorporated in 1993 and owned by UK-based Welcome Ltd, has shares in GlaxoSmithKline India. The Indian unit of British pharma major Glaxo is listed on both BSE and the National Stock Exchange. It had acquired 60,000 shares of GSK India in 1993 and 16,80,170 shares of Burrogh Welcome India in 1996. Later, Burroghs Welcome India merged with GSK and Casteton Investment’s share holding swelled to 3,192,238.
Castleton, which was owner of 3.77 percent of GSK India, has transferred these shares to Singapore GSK pte, which is also part of Glaxo Smithkline group but incorporated in Singapore.
These share transfers have become a test case for Indian tax system. Tax authority said institutions like Castleton Investment have to pay at least minimum alternative tax. Tax authorities and Castleton Investment locked the horn and approached to AAR. AAR said that Castleton is exempted from capital gain under Article 13 (4) of India-Mauritius tax treaty, but has to pay MAT on these transfer gains. On the basis of AAR ruling, tax department had sent out tax notices to companies like Castleton.
