06 November 2010
Private Limited Company (Indian Entity) doing manufacturing in India and exporting goods to an Entity in Italy (Italian Entity) intends to Acquire Shares of the said Entity in Italy (Acquisition of about 50% of controlling stake).
For this purpose the said Indian Entity has appointed the consultants in Italy for carrying out due diligence of the said Italian Entity. The due diligence is carried out in Italy and the report is prepared and issued in Italy by the said Consultants in their language. The Indian entity has received the copy of the said report by mail/email which report Indian Entity have got translated the same in English in India. The Indian entity is yet to decide about the acquisition. The Indian Entity is now required to remit the consultancy fees to Italian Consultant for due diligence report. Italian Consultants does not have any establishment or connection in India.
The said Indian Entity is also the holding company of One Entity established in Dubai (Dubai Entity).The said Dubai Entity is 100% subsidiary of the Indian Entity.
Case A: The Indian Entity is yet to Decide about the acquisition.
Case B: The Indian Entity Decides to directly acquire stake in Italian Entity.
Case C: The Indian Company decides to acquire the Stake in Italian Entity through its Dubai Entity.
Query:
1> Is the Indian Entity required to withhold any Tax in India on remittance from India to Italian Consultant? ( For Case A , Case B and Case C )
2> If Tax is to be deducted than what is the Rate with PAN and without PAN of the recipient?
3> In ‘ Case C ‘ if the Dubai Entity makes the payment to Italian Consultant from Dubai from Funds remitted from India to Dubai by its holding company i.e. Indian Entity, than any withholding tax is required to be deducted or not in India ? . If yes, what will be the rate of deduction as per 2 above?
(Please state all relevant provisions of Income Tax in reply)
09 November 2010
Section 194J specifies for deducting TDS only when the payment is made to a resident. Since, in the present case, Due diligence, is done by an Italian, TDS is not to be deducted when remitting the fees.
In my opinion and according to the provisions i have read, the above view holds good for all the three cases cited in the query.
CAclubindia
