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Invoking M.F.N. Clause Under Indian Tax Treaties Requires Notification

Invoking M.F.N. Clause Under Indian Tax Treaties Requires Notification

India’s tax treaties with various countries mitigate double taxation and reduce the scope of taxable income or provide lower rates of withholding tax in certain cases. Some agreements include a most favoured nation (“M.F.N.”) clause. The clause allows the treaty partner country to import benefits from a subsequently signed Indian income tax treaty when certain conditions are met, most notably that the treaty partner country in the treaty subsequently signed is a member of the O.E.C.D. Opinions differed as to whether the M.F.N. clause is self-executing when a treaty partner country was not a member of the O.E.C.D. at the time its treaty with India is negotiated but subsequently becomes a member. Does the M.F.N. clause apply automatically or are there procedures to follow? Recently, the Supreme Court of India upheld the position of Indian tax authorities that an M.F.N. clause is not self-executing and that an M.F.N. clause properly looks only to the list of O.E.C.D. member states at the time the earlier treaty was signed. Sakate Khaitan, the Senior Partner of Khaitan Legal Associates, Mumbai, Abbas Jaorawala, a Senior Director and Head-Direct Tax of Khaitan Legal Associates, Mumbai, and Weindrila Sen, an associate of Khaitan Legal Associates, Mumbai explain all. Indian subsidiaries now face the risk of taxation, interest, and penalties for the past 10 years.

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Dividend Income from India: Tax Treaty Issues for Nonresident Shareholders

Dividend Income from India: Tax Treaty Issues for Nonresident Shareholders

Effective April 1, 2020, the dividend distribution tax (“D.D.T.”) imposed on Indian companies paying dividends was abolished. While Indian politicians may say otherwise, tax advisers outside India viewed the D.D.T. as a workaround allowing India to collect the equivalent of dividend withholding tax without having to take into account a lower rate provided by an income tax treaty. With the demise of the D.D.T., the Indian tax authorities are challenging claims for dividend withholding tax benefits. Sakate Khaitan, the senior partner of Khaitan Legal Associates, Mumbai, and Abbas Jaorawala, a Senior Director and Head-Direct Tax of Khaitan Legal Associates, Mumbai, review issues that have been raised by the Indian tax authorities at the time dividends are declared and paid to residents of several countries that are treaty partners of India. Terms such as G.A.A.R., P.P.T., and M.L.I. are often raised. In addition, treaties that have most-favored-nation (“M.F.N.”) provisions are now regularly challenged.

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Do India’s Amalgamation Revisions Prevent Misuse of Accumulated Losses?

Do India’s Amalgamation Revisions Prevent Misuse of Accumulated Losses?

India’s recent Finance Act addressed a tax planning device intended to reduce or eliminate the imposition of the Dividend Distribution Tax ("D.D.T") that applies when a corporation exercises the right to distribute dividends to shareholders.   The statue targets plans involving an amalgamation between a profitable company and a loss company and prevents the reduction of earnings when the profitable company is the acquiring company.  Does this mean that earnings can be reduced when the loss company is the acquiring company?  Differing views have been expressed by Indian tax advisers.  CA Anjali Kukreja of R.N. Marwah & Co L.L.P., New Delhi, examines both views and explains why one view is technically preferable.

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