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Are foreign companies liable for MAT?

QUESTION: We are informed that the Authority for Advance Ruling has ruled in a number of cases that foreign companies may well be liable for MAT. Since we have some associate foreign companies having business with us, what are the chances of such companies being made liable for MAT in India and what would be our responsibilities?

ANSWER: Foreign companies are not immune from MAT, if they have business in India as was decided in Advance Ruling P.No. 14 of 1997 In re (1998) 234 ITR 335 (AAR) and Niko Resources Ltd. v CIT (1998) 234 ITR 828 (AAR).

In Praxair Pacific Ltd In re (2010) 326 ITR 276 (AAR), it has been ruled that a foreign company, which has a permanent establishment in India, would be liable for MAT apparently on such income from the permanent establishment.

The correctness of these rulings is not free from doubt because this tax contemplates not only accounts under Schedule VI of the Companies Act, 1956, in India but also to annual general meeting in India.

But in the absence of any exemption for foreign companies and in view of the ruling from the Authority for Advance Ruling, there is scope for the inference of possible liability.

But then the decisions of the Authority for Advance Ruling have not taken into consideration the effect of Double Tax Avoidance Agreement, which provides for tax on income attributable to permanent establishment even as inferred under the domestic law on income attributable to business connection in India.

MAT would be a redundant tax, since tax is always payable on such income of permanent establishment or as branch profits in the Direct Taxes Code Bill, 2010, which specifically provides for tax on income of permanent establishment and branch profits.

Liability for non-Indian income should not be possible either under the domestic law or Double Tax Avoidance Agreement so that foreign companies should not be additionally liable for MAT.

There is, therefore, no need for any apprehension for the resident in India on account of possible MAT liability for its foreign associate.

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