Vienna Convention for MFN cases? SC to decide
NEW DELHI : European multinational companies facing hefty tax demands in India have filed a review petition urging the Supreme Court to follow the Vienna Convention in interpreting the most-favoured nation (MFN) clause in tax treaties, two people familiar with the matter said. Ruling on a batch of five petitions, a landmark 19 October Supreme Court verdict had backed the tax department in the matter, effectively doubling the withholding tax outgo of these companies, and potentially opening up more companies to similar tax demands. The aggrieved companies soon filed review petitions; among them, Steria India challenged a tax ruling pertaining to the India-France tax treaty.
Concentrix Services BV and Optum Global Solutions challenged a tax ruling interpreting the India-Netherlands treaty; and Nestlé’s appeal was about India-Switzerland tax treaty. While each of the cases vastly differed from each other, the common question of law involved the MFN clause. For example, dividends earned by Dutch companies in India are subject to a withholding tax of 10%, under the Double Tax Avoidance Agreement (DTAA) between the two countries.
However, under the treaty’s MFN clause, if India has a lower withholding tax rate with any other country, dividends will be taxed at the lower rate, not the treaty rate of 10%. Since India has a lower withholding tax rate of 5% with some other countries, the Dutch companies calculated tax at that rate, which was rejected by the tax department on the grounds that the government had not specifically notified it. The Supreme Court backed the tax department in these cases.
Read more on livemint.com
