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CMA Final · Direct Tax Laws and International Taxation · Double Taxation Avoidance Agreements (DTAA)

Under section 159(5) of the Income-tax Act, 2025, how is the charge of tax on a foreign company at a rate higher than that on a domestic company treated for treaty purposes?

A higher rate of tax on a foreign company than on a domestic company is not regarded as a less favourable charge or levy of tax on the foreign company. So it does not amount to discrimination under the section's treaty provisions.

  1. AIt is a less favourable charge that the treaty prohibits
  2. BIt is not regarded as a less favourable charge or levy of tax on that foreign companyCorrect
  3. CIt is permitted only if the foreign company has no permanent establishment
  4. DIt is permitted only for companies from countries with no agreement

Explanation

Section 159(5)(a) states that taxing a foreign company at a higher rate than a domestic company shall not be regarded as a less favourable charge or levy of tax. So a non-discrimination clause is not breached by the higher rate.

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