-
Feb 26, 2020
-
Companies, FPIs stare at tax confusion
Many companies and foreign portfolio investors (FPIs) are expected to find themselves in each other’s crosshairs over the issue of taxing dividend.
The onus is on companies to tax dividends of their investors before the pay-out. The question is at what rate should the FPIs be taxed — should they be taxed as per India’s tax treaties with the countries they are based at, or as per the domestic tax rates.
Also, even if they are taxed at lower rates under the tax treaties, that can only be applied to FPIs that are ultimate beneficiaries and not just passthrough vehicles registered in locations like Singapore or the Netherlands. This could become a point of dispute between companies and FPIs — investors would want taxes to be deducted as per tax treaties but the companies could seek clarity over their structure before doing so.
“There is no clarity as to whether companies declaring dividends need to withhold tax at 20 per cent or at the higher rate of 30 per cent or 40 per cent as per TDS (tax deducted at source) rates prescribed in the Income Tax Act. It is also unclear whether the benefit of lower withholding under tax treaties can be extended to FPIs,” said Himanshu Parekh, the head of corporate and international tax at KPMG.
|