MNCs may face Rs 11,000 cr retro tax demand after SC ruling
tax demands for close to ₹11,000 crore on dividend income repatriated from India, following a Supreme Court ruling last week.
The Supreme Court said on Thursday 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 merely on the most favoured nation (MFN) basis. The apex court held that the 5% rate would be available only to companies based in countries with which India had notified a double taxation avoidance agreement (DTAA) allowing it. In the absence of this, companies have to pay 10% tax on dividend income.
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Offering CollegeCourseWebsiteNorthwestern UniversityKellogg Marketing Leadership Development ProgramVisitIndian School of BusinessISB Chief Technology OfficerVisitIndian School of BusinessISB Leadership in AIVisit«A large number of companies were misusing the OECD Most Favoured Nation (MFN) clause,» a senior official told ET, indicating tax notices for lower tax payments in previous years. «We were awaiting the Supreme Court order so there will be a review of tax positions in many cases.» Even by conservative estimates, India was losing about ₹3,000 crore in taxes annually, according to him.
Top Court's Decision
Tax experts said the verdict may also have implications for withholding tax on royalties and fees for technical services.
«The SC ruling would have a retrospective application and would impact all existing and past transactions where treaty benefits claimed under the MFN clause are not in accordance with the above principles decided by SC,» said Riaz Thingna, partner, Grant Thornton Bharat.
The apex court had set aside a 2021 Delhi
