No automatic tax relief under treaties: MNCs seek amnesty scheme; firms asked to cough up Rs 11,000-cr after SC ruling
Leading tax consultants have urged the government to announce an amnesty scheme for multinational companies who have been affected by the recent Supreme Court’s ruling in the Nestle SA case.
The apex court in a ruling in October held that no automatic international treaty benefit, including a lower withholding tax of 5%, is available to foreign companies operating in India. Treaty benefit can’t be made available to OECD countries just on the Most Favoured Nation (MFN) basis, the top court said.
Following this, several multinationals have reportedly received tax demand notices of over Rs 11,000 crore concerning existing and past transactions where treaty benefits were claimed by firms without following the procedure laid out by the apex court.
The consultants on behalf of their clients stated in their interactions with top tax officials that taxpayers could provide a one-time window to make voluntary payments of the differential taxes, without interest or penalty. This could be announced in the interim Budget on February 1, they proposed.
The SC judgement, experts say, had significant implications on the interpretation of the Double Taxation Avoidance Agreement (DTAA) and the diverse benefits that taxpayers have traditionally accessed.
While setting aside a Delhi High court ruling in the Nestle case, a division bench of the apex court said: “a notification under Section 90 of the Income tax Act is necessary and a mandatory condition for a court, authority, or tribunal to give effect to a (Double Taxation Avoidance Agreement).”
The HC had earlier ruled that the Most Favoured Nation (MFN) clause in India’s DTAAs with Organisation for Economic Co-operation and Development (OECD) member countries provides for lowering of the rate of taxation at source on dividends, interest, royalties or fees for technical services paid by Indian companies to foreign parents. Such concession, the HC noted, would be given to the respective OECD country subsequently.
One of the expert says that recognising the need to provide certainty and resolution for present cases where lower rate has already been claimed, the tax policy administration should consider establishing guidelines under a settlement scheme. “Such schemes could provide one-time window for taxpayers to make voluntary tax payments of differential taxes, without interest or penalty.”
Another expert says, the government should notify the lower withholding tax rate or scope, as the case may be, for fee for technical services and royalties under the MFN clause of the affected DTAAs.
The Central Board of Direct Taxes is expected to release specific guidelines regarding the interpretation of protocols to treaties between India and various countries soon, say experts. These guidelines will be intended for implementation in future transactions, promoting clarity and consistency in treaty interpretation.
Please visit our website & Get FREE GST Registration : https://khatadekho.com/