Minimum Alternate Tax Not Applicable to Companies with No Establishment in India

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Aug. 11 – A verdict made by the Authority for Advance Ruling (AAR) in July has confirmed that minimum alternate tax (MAT) is not applicable to foreign companies with no permanent establishment in the country.

The verdict was made regarding the case of Mauritius-based Praxair Pacific when it wanted to verify with AAR if the company would need to pay MAT to transfer shares from Indian subsidiary Jindal Praxair to another wholly-owned Indian subsidiary Praxair India.

The AAR verdict clarifies that Section 115 JB of the Income-Tax Act is only applicable to local companies and will not apply to foreign companies with no local base or permanent establishment in the country.

Praxair Pacific is also not required to pay tax in the country for capital gains coming from the transfer of shares to the Indian subsidiaries following India’s  Double Taxation Agreement with Mauritius. However, this may soon change as India wants to renegotiate the terms of its tax treaty with Mauritius to decrease the instance of tax evasion cases.