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MNCs to pay additional Rs 10,000 cr income tax
August, 14th 2007
The Income Tax department has issued notices to foreign companies to pay about Rs 10,000 crore as additional tax after collecting information from other sources and scrutinising their returns.

"Income Tax department has raised demand for additional tax amounting to Rs 54,823 crore from corporates and individuals, including Rs 9,890 crore from foreign companies till March 31, 2007," a Finance Ministry official said.

He said foreign companies have been asked to pay Rs 9,400 crore additional corporate tax and Rs 496 crore as income tax. Out of this, they have deposited Rs 113 crore. In total, around Rs 1,400 crore has been deposited with the department.

The department was hopeful of collecting a major portion of the remaining tax this year, he said.

Foreign companies have to pay 40 per cent corporate tax, 2.5 per cent surcharge and 3 per cent educational cess.

In fact, the Central Board of Direct Taxes (CBDT) has asked chief income tax commissioners to ensure that foreign companies are taxed properly, especially after Supreme Court's decision in the Morgan Stanley case on captive BPOs.

The Supreme Court had held that income tax department cannot tax a part of the global income of a foreign company by attributing it to its India-based BPO.

According to CBDT's action plan for 2007-08, "another area of concern is the liaison officers maintained by foreign companies in India. Some of these officers are carrying out business in India but claiming themselves liaison officers."

The action plan approved by Finance Ministry is aimed at collecting Rs 2,67,490 crore in direct taxes.

The sources said Finance Ministry has expressed concern that a number of foreign companies were indulging in tax avoidance by passing profits of their Indian subsidiaries to the parent companies through under-voicing of products and services to the group companies.

They pointed out many of these companies were misusing tax exemptions under double taxation avoidance treaties with various countries, and claiming that they have only liaison offices in India, which are found to be doing businesses.

Income Tax officials have been asked to monitor tax payment by these companies.
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