MFN clause not enough for companies from OECD countries to avail lower withholding tax: SC
Supreme Court Thursday held that the lower 5% withholding tax on dividend income of companies was not available to all Organisation for Economic Co-operation and Development (OECD) countries just on the most favoured nation (MFN) basis.
A bench led by Justice Ravindra Bhatt held that international treaty practices are not enforceable in India unless the government notifies them, a ruling that experts said will have wide ramifications for the industry.
«The decision of the apex court will have wide repercussions for the industry and could result in millions of dollars of additional tax revenue for the government,» said Amit Maheshwari, tax partner, AKM Global, adding that it could also entail reopening of past cases in form of fresh action by tax authorities.
The top court set aside a 2021 Delhi High Court ruling that allowed Nestle SA, Concentrix Services, Steria and others a concessional withholding tax rate of 5% on dividend income from their Indian arms, extending the MFN clause in the OECD. The court also made it clear that preferential treatment given to a country under a double taxation avoidance agreement did not automatically get extended to other member countries unless the earlier treaty with them was amended.
Experts said other countries could also revisit the position on benefits under these treaties.
«Consequently, the other country might also revisit its position before granting Indian companies such benefits under the treaty. This would also impact past investments, wherein tax costs (e.g.
Read more on economictimes.indiatimes.com
