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‘Get tax residency right prior to remittance’

Vinson Kurian Thiruvananthapuram | Updated on October 14, 2012 Published on October 14, 2012

Provisions requiring a non-resident to obtain tax residency certificate (TRC) from the country of residence are being made applicable from April 1, 2013.

Having regard to the concept of assessment year and tax year, the requirement may be construed as applicable from tax period commencing on April 1, says a Kochi-based corporate law advisory firm.

TREATY BENEFITS

There is also a possibility that questions may arise about transactions concluded prior to the date of the notification.

From a withholding tax perspective, it is imperative that deductors advise vendors on the requirement to furnish the TRC in the event ‘treaty benefits’ are availed, according to Sherry Oommen, founder and senior partner, GyanMagnus Associates.

It would be advisable to obtain the TRC prior to effecting any remittance, especially when a benefit under a tax treaty is availed.

NECESSARY CONDITION

Oommen recalled that the Finance Act, 2012, had introduced provisions requiring non-residents to furnish TRC in order to get benefits of Double Taxation Avoidance Agreement (DTAA).

Interestingly, it has been provided that the TRC is required as a necessary, but not sufficient, condition for getting these benefits.

TRC was introduced to ensure that DTAA benefits are available only to residents of a particular country and prevent residents of a third State from claiming them.

A Central Board of Direct Taxes notification specified that the following particulars shall be included in the certificate:

ASSESSEE DETAILS

Name of the assessee; status; nationality or country or specified territory of incorporation or registration; tax identification number or any unique number; residential status for purposes of tax; period for which the certificate is applicable; and address of the applicant.

The form of application also confirms that TRC could be requested for a given period as mentioned in the application.

Thus, there appears to be a flexibility that TRC may be obtained in advance for a given period, Oommen said.

The forms prescribed for residents may provide guidance for enabling non-residents to comply with TRC obligation.

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Published on October 14, 2012
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