Foreign Firms Get Retrospective Relief From Controversial Tax

In a big relief to foreign firms, the government on Thursday exempted them from paying minimum alternate tax (MAT) retrospectively from April 2001, provided they did not have a permanent establishment in India.

Tax experts said that this government move ends a lot of uncertainty on the controversial MAT issue and will help improve the investment climate. MAT is a tax levied on entities that don’t pay corporate tax because of exemptions and incentives.

Earlier this month, the government had exempted foreign institutional and portfolio investors from payment of MAT on the capital gains made by them before April 1, 2015. The Budget 2015-16 had already exempted FIIs/FPIs from paying the levy on gains made after April 1.

An government statement said that the provisions of Section 115JB of income tax will not apply to foreign companies with effect from April 1, 2001, if they are resident of a country with which India has a double taxation avoidance agreement (DTAA) and they do not have a permanent establishment in India.

A double tax avoidance agreement is essentially a bilateral pact between two countries to avoid taxation of the same income in both the countries.

In case the companies belong to countries with which India does not have a DTAA, the exemption will apply if they are exempted from registration under Section 592 of the Companies Act 1956, or Section 380 of the Companies Act 2013.

Finance Minister Arun Jaitley earlier this month had said that the government is looking at speedier resolution of pending tax disputes.