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Interest paid by a Foreign Bank Branch to overseas HO and other Branch – Non Resident Taxation

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May 5, 2021

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3 mins read

Interest paid by a Foreign Bank Branch to overseas HO and other Branch – Non Resident Taxation – International Taxation Case Study

LLM Bank Ltd. carrying on banking business is incorporated in Melbourne, Australia. It has branches in different countries including India. During   financial year 2018-19, the Indian branch of the bank paid interest of ₹ 20 lakhs and ₹ 15 lakhs, respectively, to its head office in Melbourne,  and to the branch office in California. State with reasons whether interest so paid shall be liable to tax in India in the hands of head office and California branch ?

Interest paid by a Foreign Bank Branch to overseas HO and other Branch – Non Resident Taxation – International Taxation Case Study – Solution:-

International Taxation Services

As per Explanation to Section 9(1)(v) of the IT Act, interest payable by Indian PE of foreign bank would be deemed to accrue or arise in India if recipient is : –

a)Head office of bank located outside India; or

b)PE of bank located outside India; or

c)Any other branch outside India.

In this case, the Indian branch, being a fixed place of business, shall be treated as the PE of LLM Bank Ltd. in India

Accordingly,  interest of Rs 20 lakhs paid by Indian branch of LLM Bank [‘being PE of foreign bank LLM] to its head office in Melbourne,  and Rs. 15 lakhs paid to the other branch office in California shall be deemed to accrue or arise in India. Accordingly, such interest income shall be taxable in the hands of Head office and California branch, respectively, in addition to any income attributable to the PE in India.

For any queries, please write them in the Comment Section or Talk to our tax expert

Arinjay Jain

Bio of author

Arinjay is a Chartered Accountant with more than 20 years of post-qualification experience. He worked as Director, in the M&A Tax Division at KPMG in India. Presently, he is advising several MNCs in UAE on Economic Substance Regulations and impact of the UAE Corporate Tax Law on their business and clients across globe on International Tax issues . He is a well recognised Trainer of International Tax and UAE Corporate Tax. The areas of service include the following : - Advise and Compliance relating to International Tax Issues; Advise relating to UAE Corporate Tax Issues; Advise and Compliance relating to UAE Economic Substance Regulations; Advise and Compliance relating to Indian Income Tax Issues; Other connected matters from a Regulatory perspective.

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