The increase in the withholding tax rate on royalty and technical services fee paid by Indian entities Indian entities or subsidiaries of multinational corporations (MNCs) to their parent company will increase the costs for consumer companies by 15-30 basis points, according to a Nomura report.
This will, in turn, affect their margins that were recovering from the impact of spike in cost of raw materials last year.
This fees is paid by companies like Hindustan Unilever, Colgate Palmolive, Nestle India, Page Industries, and Jubilant Foodworks to get access to their knowledge, R&D, and intellectual properties.
As a part of the Finance Bill 2023, the government has decided to double the rate of tax on royalties and technical fees to 20%. The change will apply to entities whose parent companies operate in jurisdictions without a tax treaty with India, including those registered in tax havens like the Cayman Islands and the British Virgin Islands.
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The tax rate will be15% on royalty and fees for technical services from countries like the US and the UK, which have a tax treaty with India.
Entities with parent companies registered in countries such as Switzerland and Japan, which have double tax avoidance trade treaties with India, will still be subject to 10% withholding tax rate.
