Government doubles tax on royalty payments by Indian MNCs

After the passage of the Finance Bill, 2023 in Parliament on Friday, Indian units of MNCs based in the US and UK will have to pay double tax on royalty payments to their parent, up from 10 per cent to 20 per cent.

This is one of the nearly 60 amendments in the Finance Bill which were passed on Friday without any discussion. This will impact companies like Hindustan Unilever, PepsiCo India, Coca Cola India etc. that pay a royalty and a fee for technical services to their parent companies, The Economic Times reported.

Companies in the US and UK receive 60 per cent of their royalty payments from India and this move is likely to adversely affect them.

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As per this amendment, the government can impose 20 per cent tax on companies based in countries or jurisdictions where India does not have a tax treaty. Countries like the Cayman Islands, British Virgin Islands come under this bracket and will now face 20 per cent tax.

Moreover, the government can now levy a higher 15 per cent tax rate on local units of companies based in countries with whom India does have a tax agreement. Many of these companies had been enjoying a lower rate of 10 per cent due to Indian law, even though tax avoidance treaties had stipulated a rate of 15 per cent.

This move will not impact companies based in Japan and South Korea as double tax avoidance treaties with them stipulate a 10 per cent tax rate.

Experts told the publication that this may also impact technology imports into India.