No retrospective MAT on foreign investors

Govt accepts recommendations of A P Shah panel

The government on Tuesday decided to exempt foreign institutional investors (FIIs) from paying minimum alternate tax (MAT) retrospectively, a measure that could lift sentiments of foreign investors and serve as a clear signal on policy clarity by the Prime Minister Narendra Modi-led government.

Finance Minister Arun Jaitley said MAT will not be levied on FIIs and foreign portfolio investors prior to April 1, 2015. The decision is based on the recommendations of the A P Shah committee, which were accepted by the government.

The government will now make necessary amendments in the Income Tax Act to this effect and get it cleared in the next session of Parliament.

Briefing reporters in a late evening press conference, Jaitley said, “What applies post April 2015, that is no MAT on capital gain on FIIs, will also apply on pre-April 2015.”

MAT is a tax levied on companies that show profits on their books and declare dividends, but pay minimal or no tax. “The government has accepted the recommendations of the Committee to clarify the inapplicability of MAT to FIIs/FPIs and has decided that an appropriate amendment to the Income Tax Act will be carried out,” Jaitley said.

May let MAT notices lapse
After Tuesday’s decision, the Central Board of Direct Taxes will soon issue a circular that will instruct taxmen not to pursue MAT cases against FIIs. CBDT may let earlier MAT notices to lapse.

This also implies that the pending MAT cases at Courts will be disposed of after the CBDT circular comes into force.

After Jaitley’s announcement during the budget session that the government would look into the issues of MAT, the government set up the three-member AP Shah committee in May to examine the matter. The committee looked into all related legal provisions, judicial, quasi-judicial pronouncements and other relevant aspects.

It submitted the report to the government last month.
Ever since CBDT started sending notices on MAT claims to FIIs, the share market has been rattled and washed off the gains coming through 2014.

PTI adds: Foreign investors have invested about $20 billion in Indian stocks in the past year and $28 billion in bonds. MAT has been levied on all companies except those in infrastructure and power sectors, since late 1980s.

Historically, foreign investors have not paid this tax because it was believed that only Indian companies were subject to it. In 2010, a tax tribunal ruled that MAT was not applicable to companies that don’t have a permanent establishment in India.

In 2010, Mauritius-based investment firm Castleton Investment approached the Authority for Advance Rulings (AAR) to get confirmation that it was not required to pay MAT on a transaction it wanted to execute.
However, AAR in 2012 ruled that even foreign companies are subject to MAT.
Following this, FIIs started getting notices for MAT payments, and the stock markets started reacting adversely on concerns that foreign investors may pull out in a big way.

The decision is based on the recommendations of the A P Shah committee recommendations

The govt will now make necessary amendments in the Income Tax Act to this effect
The CBDT will soon issue a circular that will instruct taxmen not to pursue MAT cases against FIIs
Taxmen may let earlier minimum alternate tax notices issued to FIIs to lapse