Question

The government of Country B imposes an income tax of 30% on the net income realized from sources within Country B by foreign persons engaged in business there. Domestic persons (including Country B corporations) are not subject to the income tax. Cosmos Corporation, a U.S. corporation, is engaged in Country B in the business of mining and exporting copper ore through a wholly owned subsidiary organized under the laws of Country B. As a Country B corporation, the subsidiary is exempt from the income tax, but it pays an export tax of $1,000 per ton of the copper ore exported. No portion of this levy is paid in exchange for a specific economic benefit from the government of Country B. No deductions are permitted in calculating this tax, and $1,000 per ton is a rate that is fixed without reference to the market value of the exported copper. Is the export tax creditable?

Would the results in to this question be different if Cosmos Corporation were engaged in the business described through a branch in Country B (rather than through Country B subsidiary) and the branch were subject to the export tax rather than to the income tax?

Answer 1

here we assume that country B- is india

(having branch in india )

foreign company would be resident in india in the previous year

if its place of effective management in the year is in india

meaning of place of edffective management -means the place where key management and commercial decisions that are necessary for conduct of business of an entityas whole are,in substance made

here in this case since all major decisions were taken through board meeting held at USA the place of effective management of Cosmos corporation a foreign company incorporated in USA

so cosmos corporation is an non resident

in the case of non resident no income shall be deemed to accrue or arise in india to him through or from operation which are confined to the purchase of goods in india for the purose of exports

cosomos corporation is liable to pay export duty on the basis of tons,

not on amount

(subsidiary company)

in the given case cosomos corporation having subsidiary company in indai so the subsidiary company would liable to pay income tax insted of export duty because

as per the rule of income tax

any income accrue and arise in india is liable to pay income tax under income tax act

here subsidiary company of cosmos corporation taking operation of mining and exporting it means business set up in india and income arising in india so cosmos corporation need to pay income tax to the indian government