Taxpayers from France, Swiss companies cannot claim low tax benefit by citing tax treaties with other OECD members

Indian arms of corporations from France, Netherlands would not 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 nations can not apply the advantages obtainable below tax treaties with entered into by India with Columbia, Slovenia making use of essentially the most favoured nation clause.

Nations together with France, Switzerland, Netherlands, not too long ago, affirmed that withholding tax in India mustn’t exceed the speed prescribed below 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 nations.

It mentioned unilateral decrees, issued by these nations (France, Switzerland and Netherlands), stating that they may avail low tax relevant on account of MFN was a merely a mirrored image of the understanding of the respective nations 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 below the respective tax treaties and treaties with Columbia, Slovenia and may very well be topic to frequent interpretation.

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

Consultants declare that it will have a bearing on Indian arms of corporations based mostly in these nations and have been engaged in litgation with Indian tax authorities.

“This assumes significance as there have been latest Excessive Courtroom rulings in favor of the taxpayers on this subject which upheld the applicability of decrease withholding tax charges utilizing the MFN clause based mostly on the precept of frequent interpretation. Although the Round clarifies that current 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, Accomplice, Nangia Anderson LLP mentioned.

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