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India's Supreme Court has postponed until September a hearing to establish whether India's minimum alternate tax applies to foreign investors who do not have a permanent establishment in the country.
The hearing on the keenly watched case was due to commence on August 4, 2015, but the Government asked the court to postpone its deliberations until it has established its own position on the application of MAT. The hearing will now begin on September 29, 2015.
Last month, the Government received the report of a panel headed by judge AP Shah which is intended to clarify whether MAT applies to foreign companies, including foreign portfolio companies, after a u-turn by the previous Government in 2012 and a new interpretation of the tax by authorities earlier this year.
Under India's tax law, corporations whose tax payable is less than 18.5 percent of book profits can also face MAT at that rate, plus surcharges where appropriate. Introduced in the 1980s, the MAT originally applied to domestic companies or those with a permanent establishment in India. However, the tax authorities changed this position in 2012, ruling that foreign companies are indeed liable to the MAT, regardless of whether they have a permanent establishment or not.
The case in question was brought by Mauritius-based investment firm Castleton Investment, which is contesting a decision by the Indian tax authorities to apply MAT on capital gains arising from the sale of shares, with the company arguing that this position effectively cancels benefits provided under the Indo-Mauritius tax treaty.
In 2015/16 Budget, Finance Minister Arun Jaitley announced that foreign companies would no longer have to pay MAT from April 1, 2015. However, the tax authorities have interpreted this decision to mean that foreign companies may owe MAT for prior years, leading to a spate of demands for back taxes from foreign firms earlier this year.
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