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Mumbai Tribunal rules MAT provisions are not applicable to foreign bank despite having branch in India
This Tax Alert summarizes a ruling of the Mumbai Income Tax Appellate Tribunal (Tribunal) dated 3 August 2022 in the case of Credit Suisse AG[1] (Taxpayer), wherein one of the issues was whether minimum alternate tax (MAT) provisions under the Indian Tax Laws (ITL) will be applicable to a foreign company having permanent establishment (PE) in India and also independently earning incomes not attributable to such PE.
Pursuant to recommendations of an expert committee, MAT provisions were amended in 2016 with retrospective effect from 2001 to, inter alia, provide that they shall not apply to foreign companies not having PE in India.
The Tribunal’s ruling is based on a conjoint reading of the explanatory memorandum to Finance Bill, 2015, that gives purposive interpretation to MAT provisions and the intent behind introducing the same. The ruling also considers the fact that the accounts of foreign companies are not prepared in accordance with Indian Corporate Laws (ICL) and their accounts are not laid in an annual general meeting (AGM) before the shareholders of the company for approval. The Tribunal ruled that MAT provisions were always intended to be made applicable only in case of domestic companies and not foreign companies. Hence, specific exemption granted from MAT to foreign companies not having PE in India cannot be interpreted to mean that other foreign companies are automatically covered within the scope of MAT.
Furthermore, under the ITL, MAT provisions cannot apply where tax treaty is invoked as ITL provisions are subordinate to tax treaty provisions. As per the applicable India-Switzerland tax treaty in the Taxpayer’s case, while income which is attributable to PE in India can be subjected to tax in India as per the domestic laws, incomes which are not attributable to the PE in India cannot be taxed at a rate higher than those provided in specific articles of the tax treaty. Hence, higher MAT rates cannot be applied to such non-PE incomes.
Accordingly, MAT cannot be applied to foreign companies which have PE in India as it would be contrary to the intent of MAT provisions and the basic scheme of the applicable tax treaty.