Non-Resident Taxation Amends
Finance Act 2012 brought significant amendments to the Income Tax Act 1961 (Act). These covered the taxation of nonresidents in India, including an amendment that deems shares of a foreign company to be situated in India, proposing general anti-avoidance rules and mandatory requirement to furnish tax residency certificate (TRC) in the prescribed form. Taxand Mauritius and Taxand India investigate the implications of these amendments on multinationals.
From 1 April 2012, a nonresident taxpayer who is eligible for treaty benefits would not be entitled to claim treaty benefits unless they obtain a TRC containing such particulars, as may be prescribed from the Government of the State of which they are a resident. The Central Board of Taxes (CBDT) issued a notification outlining the criteria demanding inclusion in the TRC, which all taxpayers in treaty countries would need to adherre to. The Mauritius Revenue Authorities (MRA) has issued a draft of the TRC incorporating all of these criteria. It is expected other treaty countries will follow suit, if it is not already the case.
An Expert Committee has given recommendations on GAAR provisions. These include:
- Deferral of GAAR by 3 years due to the lack of preparedness of Indian Revenue Authorities to tackle GAAR
- Grandfathering of investments made prior to the effective date of GAAR
- GAAR provisions should target abusive, contrived and artificial transactions.
Transfer of shares in offshore companies
The Expert Committee has recommended that for foreign companies who earn revenue in India, only those whose assets exceed 50% should be taxed and implications under the tax treaties should be assessed. In addition, the committee has recommended that transaction of listed securities, intra group restructuring of foreign companies should not trigger this provision.
Discover more: Changing the landscape of taxing non-residents
All multinationals, who conduct business in India, should take note of the above amends to the Income Act in order to be compliant. In terms of the TRC process, multinationals should invesitgate how their local government is responding to the new mandatory process. For instance in Mauritius, the CBDT Circular No. 789 states that the TRC issued by the MRA is evidence of the residence of Mauritian companies.