Lok Sabha Question No. 630 (UNSTARRED), answered on 2018-07-20
Subject: Taxes on Foreign Companies
Ministry: FINANCE
Asked by: VIJAYSINH MOHITE PATIL, DHANANJAY BHIMRAO MAHADIK, SUPRIYA SADANAND SULE, RAJEEV SHANKARRAO SATAV, P.R. SUNDARAM, HEENA VIJAYKUMAR GAVIT, JAYAKUMAR JAYAVARDHAN

## GOVERNMENT OF INDIA MINISTRY OF FINANCE DEPARTMENT OF REVENUE

## LOK SABHA UNSTARRED QUESTION NO. 630

## TO BE ANSWERED ON FRIDAY, THE 20 th JULY, 2018 ASHADHA 29, 1940 (SAKA)

## TAXES ON FOREIGN COMPANIES

## 630. SHRI MOHITE PATIL VIJAYSINH SHANKARRAO:

SHRI DHANANJAY MAHADIK:

SHRIMATI SUPRIYA SULE:

SHRI SATAV RAJEEV:

SHRI P.R. SUNDARAM:

DR. HEENA VIJAYKUMAR GAVIT:

DR. J. JAYAVARDHAN:

Will the Minister of FINANCE be pleased to state:

- (a) whether foreign  companies are  taxed  only  on  income  which  arises  from  operations carried out in India;
- (b) if  so,  the  quantum  of  taxes  collected  during  the  last  three  years  from  foreign companies;
- (c) whether the Government has notified rules for computation of Income Tax for foreign companies, if so, the details thereof and the objective behind the move;
- (d) whether  the  notified  rules  are  likely  to  bring  transparency  and  collection  of  more taxes, if so, the details thereof; and
- (e) whether Central Board of Direct Taxes (CBDT) has also notified that a company will be treated as foreign even after it becomes headquartered in India and if so, the details thereof and the reasons therefor?

## ANSWER

## MINISTER OF STATE IN THE MINISTRY OF FINANCE (SHRI SHIV PRATAP SHUKLA)

- (a) As per provisions of the Income-tax Act, 1961 (the Act) a foreign company is liable to tax on all income from whatever source derived which is received or is deemed to be received  in  India  or  accrues  or  arises  or  is  deemed  to  accrue  or  arise  in  India. However, the taxation of a foreign company under the Act is subject to the provisions of the Double Taxation Avoidance Agreement, if any, between India and the country of which the foreign company is a resident.

- (b) Quantum of taxes collected during the last three years from foreign companies as per the return of income are as under:

<!-- formula-not-decoded -->

A.Y 2017-18 = Rs. 27,561.43 Cr.

- (c) A notification No 29/2018 under section 115JH of the Act has been issued vide SO 3039(E)  dated  22.06.2018  providing  for  exceptions,  modifications  and  adaptations, with  which  provisions  of  the  Act  relating  to  the  computation  of  total  income, treatment of unabsorbed depreciation, set off or carry forward and set off of losses, collection and recovery and special provisions relating to avoidance of tax shall apply, in  a  case  where  a  foreign  company is  said  to  be  resident  in  India  on  account  of  its Place of Effective Management (PoEM) in India under sub-section (3) of Section 6 of the  Act  for  the  first  time  and  the  said  company  has  never  been  resident  in  India before.

The notification being an aid to the PoEM provisions, has the objectives of providing clarity, ensuring certainty and facilitating ease of compliance.

- (d) With  the  objectives  of  providing  clarity,  ensuring  certainty  and  facilitating  ease  of compliance as also PoEM being an anti-abuse, anti-base erosion measure, the rules are likely to bring transparency and they may also result in additional revenue.
- (e) The notification provides that the foreign company shall continue to be treated as a foreign company even if it is said to be resident in India and all the provisions of the Act shall apply accordingly. Consequently, the provisions specifically applicable to-
- (i) a foreign company, shall continue to apply to it;
- (ii) non-resident persons, shall not apply to it; and
- (iii) the provisions specifically applicable to resident, shall apply to it.

Further, in case of conflict between the provision applicable to the foreign company as  resident  and  the  provision  applicable  to  it  as  foreign  company,  the  later  shall generally prevail. Therefore, the rate of tax in case of foreign company shall remain the  same,  i.e.,  rate  of  income-tax  applicable  to  the  foreign  company  even  though residency status of the foreign company changes from non-resident to resident on the basis of PoEM.

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