Overseas firms see compliance burden increasing to get tax treaty benefits

Chartered accountants' group asks CBDT to do away with PAN requirement for filing form electronically

Overseas companies without a permanent establishment in India are wary of increased compliance burden this financial year, as they have to file forms electronically to claim benefits under double taxation avoidance agreements (DTAA).

The forms are needed for taxes paid on payments from Indian vendors for the services given by overseas firms with no PE. Indian vendors deduct withholding tax or tax deducted at source (TDS) on these payments. In case, treaty benefits are not given, higher tax burden will fall on such transactions.

The Finance Act, 2012 inserted section 90(4) under the Income Tax Act, 1961 to provide that such companies will not be entitled to the DTAA benefit unless they obtain a Tax Residency Certificate (TRC) from the government of the country of which they are residents.

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The Finance Act, 2013 a year later inserted another section—90 (5)—along with Rule 21AB, which provides for furnishing a self-declaration in Form 10F.

While the TRC obtained from tax authorities generally contains most of the information required such as details of the company, the year of taxation, tax identification number etc, form 10F is furnished by the non-resident taxpayer for the balance information such as PAN or as a matter of precaution.

Earlier, the form was signed physically by the overseas companies and furnished along with the TRC to resident payers for the purpose of determining the withholding tax implications or to the tax authorities during scrutiny proceedings if required.

However, the Director General of Income Tax (Systems), with the approval of the Central Board of Direct Taxes (CBDT), issued a notification on July 16 this year that this form has to be furnished only electronically on the income tax portal.

One is required to create a long id and password on the portal to file the form 10F electronically. For this, obtaining a permanent account number (PAN) is mandatory. In other words, the portal does not allow a taxpayer who does not have a PAN to file Form 10F.

Companies now say that obtaining a PAN in India creates an unnecessary compliance burden, especially when after TDS by the resident payer, there is no further compliance required to be undertaken by such payees.

"Obtaining PAN creates an unnecessary compliance burden on the non-residents," said Yeeshu Sehgal, head of tax market, AKM Global.

Another challenge includes the signing of the form through the digital signature certificate (DSC). This means foreign companies need to apply for the DSC as well, which adds to the compliance burden, said Sehgal. The Indian tax portal should allow the non-resident payees to file form 10F without creating PAN-based login.

Bombay Chartered Accountants' Society has written to the CBDT to do away with the mandatory requirement of furnishing form 10F electronically, at least for those who do not have PAN. It suggested the board allow electronic filing of the form without the requirement of PAN-based login. Resident taxpayers should ideally be asked to do this compliance instead of non-resident tax payers, the letter said.

CBDT spokesperson Surabhi Ahluwalia said, "I am directed to say that this issue is under examination to find an appropriate solution."