Section 115JB – Applicability of Minimum Alternate Tax (MAT) on foreign companies – Benefit may be extended to foreign companies having permanent establishment and covered under the presumptive tax regime in India
Issue/Justification
The Ministry of Finance has clarified that foreign company not having a permanent establishment in India will be exempt from MAT. An appropriate amendment has been made in the Act in section 115JB in this regard vide the Finance Act, 2016.
The Income-tax Act, 1961 contains various provisions which provides for presumptive tax regime for nonresidents (for example Section 44BB).
Under the presumptive tax regime, foreign companies pay tax at lower rate. Such foreign companies do form permanent establishment in India even when their activities are confined to the areas specified inthe presumptive tax provisions. If such foreign companies are subjected to MAT, the purpose for which the beneficial concessional tax rate regime has been introduced as specified in the relevant sections would be defeated.
MAT levy may be restricted to India profits
Companies not having PE or Place of Business in India are eligible for absolute exclusion from MAT levy. However, in relation to foreign companies with presence in India, who may or may not have separate India specific accounts, issue may arise whether book profits should be computed based on global profits or only with regard to India profits.
Suggestion
It is suggested that
(a) a suitable amendment may be made providing that foreign companies having permanent establishment in India and covered under the presumptive tax regime may be kept outside the purview of MAT.
(b) in order to avoid any controversy, it may be clarified that in case of foreign companies having PE / Place of Business in India, the computation of book profits may be based on India profits and not global profits.
