Deducting Withholding Tax For Foreign Supplier Payments?

[Asked by Guest]

Hi All, I have a major headache and would really appreciate some expert advice from any of you!

Please allow me to give you small background: My company is a digital marketing agency - we have company entities in Hong Kong, Thailand, Singapore and India. From our Indian entity we are providing services for Indian hotels.

Now... to provide international customers for our Indian hotels we need to utilize international websites, which don't have a PE in India or PAN.

The problem: Our Chartered Accountant firm tell us that we must deduct withholding tax when paying their invoices. However, the supplier would not be able to claim that WHT back as they have no Indian company - so clearly this is not acceptable to our supplier to only receive 90% of their dues!

Does anybody have a solution to this? It seems like we can't work with international suppliers for our Indian business!

Thanks so much for anyone kind enough to help :)

Michael

[Ganeshan Kalyani]

Sir, one cannot escape tax if deductible. If Pan is available then regular rate of tax is applicable if not then 20% is deductible. For further possibility please check the DTAA - Double Taxation Avoidance Agreement. Thanks.

Dear Ganeshan,

Thanks so much for your reply, even if it is bad news for me! I guess we can't really work with international suppliers feasibly.

Thank you once again!
Michael

[Ganeshan Kalyani]

Please check out the sentence of my reply. Id there is any agreement between countries for double taxation avoidance then transaction with that country will not attract tax. Thanks.

[DR.MARIAPPAN GOVINDARAJAN]

It is the logic when the revenue accures in India TDS is liable to be made. Your case is a complex one and it is prevailing for all like you. To get a clear picture you may refer to Shri Rajarathinam, Advocate (Ex.Tribunal Member), who is an expert in Income Tax field.

AI Summary

Withholding tax obligation can require deduction on payments to foreign suppliers lacking PAN or PE, subject to DTAA.
Payments from an Indian entity to foreign suppliers for services used in India can require deduction of tax at source where revenue is treated as accruing in India; lack of an Indian PAN often leads advisers to apply a higher withholding rate. Examination of any Double Taxation Avoidance Agreement between jurisdictions may alter withholding obligations or rates and inform whether treaty relief or exemptions apply.