Indian Government declares 40 per cent tax on offshore companies with Indian place of effective management
A recent article published on the MNE Tax website, written by Mohit Agarwal, Tax Director at PwC India, reports on the recent guidance reported by the Indian government relating to computation of tax liability, applicable tax rates and related compliance once a foreign company’s place of effective management (PoEM) – the company’s tax residence will be determined in India. This importance guidance was issued on June 22, 2018.
PoEM is an internationally accepted concept to determine the residence for the purposes of tax treaties (including those signed by India) and is also provided for in the OECD’s Model Tax Convention. These rules were added to Indian law to curb shifting of profits to shell companies outside India if effectively managed from India.
New India PoEM guidance
The new guidance addresses how to prepare financial statements in case the accounting year of the foreign jurisdiction does not end on 31 March; computational aspects relating to a depreciation claim; adjustments of carried forward losses and unabsorbed depreciation; eligibility to avail of the foreign tax credit; and other matters.
An important clarification indeed provides that the tax rate applicable to such foreign companies would be 40% (plus surcharge and cess). Thus, under India’s PoEM regime, even though the foreign company would be subject to tax on its global income (like a domestic company), it still must pay tax at a higher rate of 40%, which is applicable to companies other than domestic companies. The notification is retrospectively applicable and it remains to be seen as to how the same can be applied to the tax filings already made for the year ending March 31, 2017.
For the full article please go to mnetax.com