Wholly Owned Subsidiary

[KR Ramesh]

Hi,

I have a query on the Corporate Tax Rate of a Wholly Owned Subsidiary of a Foreign Company.

A company is registered in India as a Private Limited Company,

100% equity is being held by the foreign entitiy.

Query , For Income Tax Purpose

1) would this be treated as a foreign company and taxed @40%

2) or it would be treated as a domestic company and taxed @ 30%

Please advice the reasons for the answer quoting the reference of the constitution if any

Many thanks

Regards

Ramesh

[MOHAN S]

Dear Mr.Ramesh,

Kindly read the definition of a "Foreign Company" and "domestic company" under Income Tax Act 1961. The answer is clearly available there.

[Bakul Gandhi]

Generally, a subsidiary company is a legal entity distinct from the holding company and will be taxed at 30% as Domestic Company. 

However, if the subsidiary company is construed as PE-Permanent Establishment- of holding company  in terms of relevant Double Taxation Avoidance Agreement, it will be taxed at 40%.

whether subsiidiary is PE or not - refer to P.No 8 of 1995 223 ITR 416 (AAR)

[KR Ramesh]

Dear Mr. Gandhi,

Many thanks for giving the direction,

Indeed it is highly appreciated.

Kind Regards

Ramesh

AI Summary

Company residence determines tax rate; subsidiary treated as domestic unless characterised as permanent establishment under DTAA.
Classification for corporate tax depends on the Income Tax Act definitions of Foreign Company and Domestic Company. A wholly owned Indian private company is ordinarily a distinct legal entity treated as a domestic company for tax purposes. If, however, under the applicable DTAA the Indian subsidiary is characterised as a Permanent Establishment of the foreign parent, the subsidiary's activities may be attributed to the non resident and taxed according to that PE characterisation.