New Delhi: The actual tax liability of foreign investors towards MAT may be much lower than Rs 603 crore, estimated by the revenue department, as many of them would get the benefit of double taxation avoidance pacts. “The number of FIIs and the amount involved would come down substantially as many of them would be eligible for treaty benefits,” a Finance Ministry source told PTI.
Following a ruling by the AAR, the revenue department has sent notices to 68 foreign institutional investors (FIIs) for payment of dues totalling Rs 602.83 crore towards Minimum Alternate Tax (MAT). These, according to sources, also include FIIs which are eligible for benefits under the Double Taxation Avoidance Agreements (DTAA) which many countries have with India. They say FPIs based in jurisdictions like Cayman Islands, Hong Kong and British Virgin Islands will have to pay 20 per cent MAT as there is no DTAA.
“FIIs from Cayman Island, Hong Kong and BVI may however continue to be hit by the MAT provisions as India does not have a tax treaty with these countries. The actual tax liability may be much lower in view of treaty relief that is now sought to be provided,” PwC Partner (Tax and Regulatory Services) Suresh Swamy said.
The actual tax liability may be much lower as Mauritius, Singapore and the Netherlands based Foreign Portfolio Investors (FPI) would also be exempted from payment of MAT, industry experts said.
Further, those FPIs based out of other countries, including Australia, UK and the US, which have DTAA with India would also be eligible for treaty benefits once they provide the tax authorities with residency proof. “Domestic tax law applies only to the extent it is beneficial over the Treaty. MAT should therefore not apply to FIIs based in treaty countries,” Swamy added.
Seeking to quickly resolve the controversial tax issue facing FPIs, the tax department has directed top officials that all claims coming under the ambit of DTAAs will be settled within a month of being filed.
“It has been decided that in all cases of foreign institutional investors (FIIs) seeking treaty benefits under the provisions of respective DTAAs, decision may be taken on such claims within one month from the date such claim is filed,” the Central Board of Direct Taxes (CBDT) said.
