Foreign investors bat for common platform to avail dividend benefits

A clutch of foreign custodians have reached out to the depositories to allow foreign portfolio investors (FPIS) to upload details for availing of lower withholding tax on dividends received on a central database managed by the depositories

The aim is to enable companies to download the requisite information directly from the depositories or from their registrars, making it easier for them to withhold tax after taking into account treaty benefits as applicable.

Tax consultants and custodians are also looking to standardise the documents to be furnished by FPIS so that they are acceptable to all firms. Other than a tax residency certificate, FPIS will provide an undertaking with respect to beneficial ownership and a declaration of no permanent establishment to the depositories. Indian firms withhold tax at the rate of 20 per cent (plus surcharge and cess) on the dividend paid to FPIS. This year’s Budget has allowed these investors to avail of lower rates of 5-15 per cent based on India’s double taxation avoidance agreement with the particular country.

The Central Board of Direct Taxes is yet to issue any clarification on the type of documents required, and as it stands, the requirement may vary from firm to firm.

“Considering the number of companies listed on the exchanges and the number of FPIS, it would be a huge operational task for investors to provide relevant documentation to companies or their registrars, and similarly for companies to collate the information and custodians/investors to discharge their withholding obligations,” said the note sent by custodians to depositories.

At present, companies write to custodians at the time of declaring dividends. The custodians, in turn, reach out to tax consultants for the relevant documents for each FPI, which is then passed on to all the companies it has invested in.

“Just like KYC documents are uploaded with central agencies like KRAS for common access, a similar database on documents required for TDS on dividends that can be accessed by any firm would go a long way in easing the TDS process,” said Sunil Gidwani, partner, Nangia Andersen.