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CS Professional · Advanced Direct Tax Laws and Practice · Double Taxation Avoidance Agreement (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 non-discrimination purposes?

It is not regarded as a less favourable charge of tax. Section 159(5) says that charging a foreign company, or a company incorporated in a specified territory, at a higher rate than a domestic company does not amount to less favourable treatment, with no further condition.

  1. AIt is regarded as a less favourable charge of tax
  2. BIt is not regarded as a less favourable charge of taxCorrect
  3. CIt is permitted only if the foreign company has no permanent establishment
  4. DIt is permitted only if the foreign company is resident in a treaty country with a tie-breaker clause

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. No PE or tie-breaker condition is attached.

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