Las empresas tienen derecho a reclamar el crédito por el impuesto pagadero en Tailandia sobre los ingresos por dividendos, incluso si no se han pagado impuestos.

Dictaminado por

Honorable Tribunal Superior de Delhi

In the matter of 

Principal Commissioner of Income Tax Vs. M/s Polypex Corporation Limited (ITA 571/2019 dated 18.07.2023)

The Assessee earned dividend income from its subsidiary company based in Thailand. Assessee was liable to pay Income Tax @ 10% on such dividend income in Thailand. However, tax was exempted due to the statutory regime obtained in Thailand. While filing ITR in India, Assessee disclosed such income and claimed the credit of tax @ 10% which was payable in Thailand but not paid due to exemptions. 

The Income Tax department contended that tax was not paid by the assessee on dividend received from its subsidiary Company. Therefore, it could not be granted tax credit of tax which is not actually paid.

Hon’ble High Court held that as per Article 23(3) of Indo-Thai DTAA, “Thai Tax Payable" includes tax which would have been otherwise payable, but for an exemption or reduction of tax granted for that year or any part thereof, under the two statutory enactments of Thailand. Further, Article 23(6) provides that tax credit can be accorded by the rate of tax which would have been applicable, if income exempted from tax in accordance with the provisions of Indo-Thai DTAA, had not been so exempted.Under Article 23 of Indo-Thailand DTAA, credit for notional tax is granted to incentivize economic development/activity.In accordance with Article 23, it is clear the assessee was entitled to claim tax credit on dividend income received from its Thai subsidiary, in respect of "Thai Tax Payable", which it would have to pay. Therefore, if exemption is not available, the dividend income would have to suffered tax @ 10% in Thailand. 

1. Brief facts of the case

• M/s Polypex Corporation Limited (“The Respondent” or “The Assessee”) has earned Dividend income from its subsidiary company based in Thailand.
• Such dividend income was taxable in the country in which the income emanated i.e., Thailand. However, such tax was not paid because of the statutory regime operating in that country.
• The Assessee included such income in its return of Income filed in India. 
• However, The assessee claimed the tax credit in respect of tax, which it would have to ordinarily pay in Thailand on such dividend income. However, such tax was exempted from levy due to the statutory regime obtained in Thailand. 
• The Assessee claimed credit of tax payable in Thailand in pursuant to Article 23 of Double Taxation Avoidance Agreement (DTAA) entered between India and Thailand even though such tax is not paid in Thailand.
• The Assessee claimed that it is entitled to claim credit tax, which it was spared from paying in Thailand.
• The Assessing Officer disagreed with the stand taken by the respondent and declined the tax credit sought in Return of Income.
• The Assessee carried the matter before the Commissioner of Income Tax (Appeals). The CIT(A) rejected the preferred appeals.
• In the Tribunal, however, the assessee was successful. It was able to persuade the Tribunal that, having regard to the tax sparing concept embedded in Indo-Thai DTAA, it was entitled to tax credit at the rate of 10%, on the dividend income received from the Thai subsidiary

2. Legal Extracts

Relevant extract of Double Taxation Avoidance Agreement (DTAA) is reiterated below for ready reference:

“Article 23: Elimination of Double Taxation

1. The laws in force in either of the Contracting State shall continue to govern the taxation of income in the respective Contracting States except where provisions to the contrary are made in this Convention.

2. The amount of Thai tax payable, under the laws of Thailand and in accordance with the provisions of this Convention, whether directly or by deduction, by a resident of India, in respect of profits or income arising in Thailand, which has been subjected to tax both in India and in Thailand, shall be allowed as a credit against the Indian tax payable in respect of such profits or income provided that such credit shall not exceed the Indian tax (as computed before allowing any such credit) which is appropriate to the profits or income arising in Thailand. Further, where such resident is a company by which surtax is payable in India, the credit aforesaid shall be allowed in the first instance against income-tax payable by the company in India and as to the balance, if any, against surtax payable by it in India.

3. For the purposes of the credit referred to in paragraph (2), the term "Thai tax payable" shall be deemed to include any amount which would have been payable as Thai tax for any year but for an exemption or reduction of tax granted for that year or any part thereof under the provisions of the Investment Promotion Act (B.E. 2520) or of the Revenue Code (B.E. 2481) which are designed to promote economic development in Thailand, or which may be introduced hereafter in modification of, or in addition to, the existing laws for promoting economic development in Thailand.

…..

6. Where under this Convention a resident of a Contracting State is exempt from tax in that Contracting State in respect of income derived from the other Contracting State, then the first-mentioned Contracting State may, in calculating tax on the remaining income of that person, apply the rate of tax which would have been applicable if the income exempted from tax in accordance with this Convention had not been so exempted.”

3. Contention of the Applicant

The Income Tax Authority (“The Applicant”) contented that:

• The tax was not paid by the assessee on dividend received from its subsidiary Company. Therefore, it could not be granted tax credit on dividend income as the same taxable in India at the rate of 30% plus surcharge and cess, as applicable.
• The Tribunal held that to obtain benefit under Article 23(2) of the Indo-Thai DTAA, it was not necessary that the assessee should have paid tax. Relevant point is whether it was liable to pay tax or not.  However, this was an erroneous conclusion, as it went beyond the scope and ambit of the Article 23 of the Indo-Thai DTAA. 
• The Assessee was not granted exemption under Article 23(2) of the Indo-Thai DTAA.
• The Assessee failed to furnish proof of such exemption being accorded to it. Thus, the Tribunal erroneously concluded that tax had not been paid in view of the exemption extended under the statutory regime prevailing in Thailand.
• The assessee did not pay tax, for reasons other than those provided in Article 23(2) of the Indo-Thai DTAA
• The exemption relied upon by the assessee was actually available to its Thai subsidiary. The exemption permitted the Thai subsidiary to not pay tax on the dividend distributed by it. However, income distributed and remitted to the Assessee became its income, and hence, the assessee cannot be allowed to rely upon the exemption under Thai law, to claim tax credit in India, under the Indian Income Tax Act.
• Therefore, the respondent could have claimed benefit of Article 23(2) of the Indo-Thai DTAA, only if he had paid tax in Thailand. 
• Since the respondent/assessee had not paid tax in Thailand, it was rightly declined tax credit by the AO.

4. Alegaciones del recurrido

The Assessee contended that:

• The concept of tax-sparing credit is given under several DTAAs including India-Thai DTAA. Under tax sparing provisions, tax credit may be claimed even for tax which, though payable, is exempted on account of incentives granted by the source country. 
• Benefit under Article 23 of the Indo-Thai DTAA is available to the recipient of income in India, as well as those who reside in Thailand. 
• The Thai subsidiary was granted an exemption from corporate income under the Investment Promotion Act. Besides this, the dividend distributed by the Thai subsidiary is also exempted from tax under the provision of Section 34 of the Investment Promotion Act.
• Section 70 of the Revenue Code of Thailand levies tax at the rate of 10% on companies incorporated under foreign law, qua assessable income which emanates from, or is received in Thailand.
• Tax could only be levied, as per the Indo-Thai DTAA, on the dividend distributed by the Thai company, in Thailand. 
• Since the dividend income received by the assessee has been offered to tax in India, at a higher rate i.e., 30% (exclusive of surcharge and cess), the respondent/assessee is entitled to tax credit at the rate of 10%, in accordance with Article 23 of the Indo-Thai DTAA. 

5. Analysis by Hon’ble High Court

Hon’ble High court analyzed the provisions of Article 23 of Indo-Thai DTAA as follows:

a. Interpretation of Article-23 of DTAA

• Artículo 23(1): Según el párrafo 1 del Artículo 23, se aplicarán las disposiciones del Estado contratante. Sin embargo, en caso de conflicto entre las disposiciones del Estado contratante y las del CDI, prevalecerán las disposiciones del CDI entre India y Tailandia.
• El Artículo 23(2)permite un crédito fiscal por el "impuesto tailandés pagadero" contra el impuesto pagadero en la India. No obstante, el párrafo 2 especifica la salvedad de que el crédito fiscal no puede exceder el monto del impuesto sobre la renta pagadero en la India (calculado antes de aplicar dicho crédito) sobre los ingresos generados en Tailandia.
• Según el Artículo 23(3),el "impuesto tailandés pagadero" incluye el impuesto que se habría pagado de no ser por una exención o reducción fiscal concedida para ese año o parte del mismo, bajo las dos leyes estatutarias de Tailandia. El párrafo 3 también alude al hecho de que dichos estatutos están diseñados para promover el desarrollo económico en Tailandia.
• Las disposiciones del Artículo 23(3) están configuradas para incentivar las inversiones en Tailandia, otorgando un crédito fiscal por el monto que era pagadero como impuesto al Estado tailandés, pero que no se pagó debido a la exención o reducción concedida bajo dichos estatutos.
• El Artículo 23(4) y (5) son una imagen especular de los párrafos 2 y 3 del Artículo 23.
• El Artículo 23(6)proporciona una pista sobre la tasa a la que se puede otorgar el crédito fiscal, al establecer, entre otras cosas, que sería la tasa impositiva que habría sido aplicable si los ingresos exentos de impuestos de acuerdo con las disposiciones del CDI entre India y Tailandia no hubieran estado exentos.

• Por lo general, el término "impuesto pagadero" significaría el impuesto que se debe o está vencido, aunque no se haya pagado. Sin embargo, el significado del término debe encontrarse en el tratado ejecutado entre dos Estados contratantes. Se debe considerar la intención de los Estados contratantes y no el significado ordinario del término.
• Por lo tanto, el significado de la expresión "impuesto tailandés pagadero" o "impuesto indio pagadero" debe encontrarse en la definición incorporada en el CDI/tratado.
• Bajo el Artículo 23 del CDI entre India y Tailandia, se otorga un crédito por impuesto nocional para incentivar el desarrollo/actividad económica. Esta es una decisión tomada por los Estados contratantes y, por lo tanto, a menos que exista ambigüedad, la interpretación que debe darse a la expresión "impuesto tailandés pagadero" o "impuesto indio pagadero" debe basarse en una lectura sencilla de lo dispuesto en los párrafos 3 y 5 del Artículo 23.
• Dichos párrafos ejemplifican la mutua conveniencia de estimular la inversión para asegurar el desarrollo económico en ambos países.
• Que el concepto de "tax sparing" (ahorro fiscal) existe es discernible del siguiente extracto expuesto en el comentario de Klaus Vogel sobre los Convenios de Doble Imposición:
  • Siempre que el método de crédito sea aplicable a los ingresos de fuentes extranjeras, los beneficios fiscales ofrecidos por el Estado de la fuente para políticas económicas o sociales, especialmente en forma de incentivos para fomentar el desarrollo económico, son absorbidos por el Estado de residencia.
  • En lugar de beneficiar al contribuyente, el incentivo beneficia a las autoridades fiscales del Estado de residencia (siempre que, como es habitual, el monto del impuesto recaudado por el Estado de la fuente sea menor, al menos debido a la reducción, que el impuesto del Estado de residencia). El incentivo fiscal queda así anulado.
  • Ese efecto puede evitarse si el Estado de residencia calcula el crédito como si el impuesto en el Estado de la fuente permaneciera en el nivel no reducido.
  • Un crédito por impuestos nocionales se otorga típicamente en los tratados fiscales concluidos entre países desarrollados y en desarrollo. Muchos países en desarrollo insisten en la inclusión de una disposición de "tax sparing" durante las negociaciones de tratados fiscales para atraer IED y promover el crecimiento económico mediante la concesión de incentivos fiscales.
  • Algunos países están dispuestos a otorgar una disposición de "tax sparing" para permitir que sus empresas residentes compitan en el Estado de la fuente bajo condiciones casi iguales a las de otros inversores. Las condiciones de "tax sparing" se acercan a facilitar la neutralidad en la importación de capital….

• De acuerdo con el Artículo 23, queda claro que el contribuyente tenía derecho a reclamar un crédito fiscal sobre los ingresos por dividendos recibidos de su filial tailandesa, con respecto al "impuesto tailandés pagadero" que habría tenido que pagar. Por lo tanto, si la exención no estuviera disponible, los ingresos por dividendos habrían tenido que soportar un impuesto del 10% en Tailandia.

6. Conclusion

El Honorable Tribunal Superior de Delhi concluyó los siguientes puntos:

1. Las apelaciones de la administración tributaria se basan en la premisa de que el crédito fiscal reclamado no podía extenderse al contribuyente porque no había pagado impuestos en Tailandia, es decir, que el beneficio bajo el Artículo 23 del CDI entre India y Tailandia solo podía extenderse en una situación donde el impuesto se hubiera pagado realmente.
2. Con respecto al CDI entre India y Tailandia, el crédito por "tax sparing" funciona tanto para los residentes de Tailandia como para los de la India. Este es un mecanismo incorporado en los CDI para incentivar la inversión para el desarrollo económico.