Friday, 25 September 2015

Government clarifies non-applicability of MAT to foreign companies in the absence of place of business in India


The Finance Act, 2015 (FA 2015) inserted a new clause to the Minimum Alternate Tax (MAT) provision, w.e.f. 1 April 2015, to exclude certain income of foreign companies from the MAT regime. These provisions are effective from tax year 2015-16 and are prospective in nature. The amendment was the subject matter of a lot of discussion and a three-member committee (Committee) headed by Justice (Retd.) A.P. Shah was formed by the Ministry of Finance (MoF) to give recommendations on the subject of levy of MAT on Foreign Institutional Investors (FIIs)/Foreign Portfolio Investors (FPIs) for the period prior to 1 April 2015. The Committee recommended that the provisions of MAT may not be made applicable to FIIs/FPIs for the period prior to 1 April 2015 . Furthermore, vide Press Release dated 1 September 2015, the Government of India (GOI) had expressed its acceptance of the recommendations and decided that an appropriate amendment will be carried out in the Indian Tax laws (ITL). However, the issue of applicability of the MAT provisions to foreign companies, other than FII/FPIs, not having place of business or permanent establishment (PE) was still perceived to be ambiguous.


The MoF has issued a Press Release dated 24 September 2015, expressing its intent of amendment to the ITL w.e.f. 1 April 2001. According to that, the MAT provisions shall not be applicable to a foreign company which does not have a PE/place of business in India. This Tax Alert summarizes the said Press Release.

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