Tax Residency Certificate (TRC) – In its new version

Tax Residency Certificate (TRC) – In its new version

*Prashant Apte*

*Synopsis- Provisions of requirement of Tax Residency Certificate were
introduced last year. The Finance Minister has attempted to make changes to
the existing provisions. The author analyses the changes that are proposed
and the possible effects.
*

*1. Introduction.*

Claim of treaty benefit by an assessee has always remained fraught with
uncertainties and controversies. Till 2012 there was no provision in the Income
tax Act providing for production of a Tax Residency Certificate (TRC) for
claiming the tax treaty benefit. This was neither a precondition mentioned
in the tax treaties entered into by India. Tax Officershowever in most
cases did insist for a TRC while examining the treaty benefit claim.
Tax Officerswere by and large accepting TRC provided by the respective
countries' tax authorities.

Last year, the requirement for a TRC, was provided as a necessary condition
for claiming tax treatybenefit. The memorandum explaining this amendment stated
TRC containing specified particulars as may be necessary but not a
sufficient condition for availing tax treaty benefits. The revenue
authorities issued rules notifying the details that were to be contained in
the certificate which were as under.

1. Name of the assessee
2. Status of the assesse
3. Nationality (in case of individuals)
4. Country of incorporation/registration
5. Assessee's Tax Identification number
6. Residential Status for the purpose of tax
7. Period for which the certificate is applicable
8. Address of the applicant for the period for which the certificate is
applicable

The certificate was to be verified by the tax authorities of the respective
countries.

In practice however it is observed that not all countries' tax authorities
change their format of TRC and certify the above details. Mostly, it was
observed that status, country of incorporation/registration and validity
period of the certificate, were not certified. This could have caused
hardship to genuine claims for tax treaty benefit.*
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*2. **Amendment proposed*

The Finance Bill 2013 generated further controversy by proposing to
introduce the language of the Memorandum of Finance Bill 2012 into the Act
viz. TRC will not be sufficient condition for claim of the tax
treaty benefit. The claim of tax treaty benefit thus would have become a
difficult exercise.

However, while moving the Finance Bill 2013 in Lok Sabha, amendments were
proposed to the Finance Bill by deleting the above amendment and
introduction of changes in the language of the existing provisions relating
to TRC.

Now, the proposal requires that a TRC issued by tax authorities of the
respective country will have to be provided to claim tax treaty benefit.
The provision that TRC is not a sufficient condition has been dropped.
However, the catch remains that this amendment is coupled with another
requirement which requires that the concerned assessee has to produce such
other documents/information which will be notified later.

*3. Conclusion*

It appears this move is prompted due to the fact that the tax authorities
of many countries were not certifying all the above eight details rendering
the TRC incomplete on a strict reading of law.

With the new proposed amendment, it seems that the TRC can be of any format
so long as it certifies the tax residency of the non-resident assessee. It
also seems that the documents in respect of the above details may have to
be provided in order to claim the tax treaty benefit. However, this issue
remains uncertain as the documents are yet to be notified.

Overall the rules seem to be softening and a welcome move as against what
was proposed in the Finance Bill 2013 as introduced initially. If put
through in an assessee friendly manner, theseamendments will go a long way
in settling the uncertainty over the claim of the tax treaty benefit and
would in terms of the Finance Minister's promise given to the foreign
investors regarding stable tax regime.

*(Author is a Manager with Deloitte Haskins & Sells & Views expressed are
his personal views)*

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