INTERNATIONAL CONFERENCE FOR CA STUDENTS, 2018 (Pune

Branch of WIRC & WICASA of ICAI)

Minimum Alternate Tax/Alternate Minimum

Tax - International Perspectives

Prepared and presented by :

Shiv Chhatwani
(WRO-0533356)
Introduction and Object

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 First Introduced by USA Secondary in nature

Prevent wealthy from artificially

Assure that high net worth
reducing their tax bill using tax
individuals pay some tax
preference items

Get into tax net those

companies who earn substantial
profits and distribute handsome
dividends but pay no tax due to
the exemptions, deductions and
high rate of depreciation
enjoyed by them.
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Role of Fiscal Policy

4
Role of Fiscal Policy
d

Impact of Fiscal Policy

Tax incentives

Anti-abuse
measures
Ease of
doing
Business

Additional
Resource
Mobilisation
Stimulation
of Growth
Minimum Tax System in
Different Countries vis-à-
vis India

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   USA
Year of  1969
Enactment 
Rate (for  i. 26% on the first
individuals) $187,800 (for 2017)
of Alternative
Minimum Taxable
Income less
exemption
ii. 28% in excess of
$187,800
Rate (for  On 22 December 2017,
Corporates) US President Donald
Trump signed the Tax
Cuts and Jobs Act which
eliminated the AMT for
corporates
levied on adjusted book
Credit Amount of tax exceeding
regular liability is allowed
as credit but the
utilization is limited so
that regular tax is not carried forward for upto
reduced below AMT for
the year
Canada India
1986 1996
16% of adjusted 18.5% of adjusted total
taxable income less a income
basic exemption of
$40,000
No minimum tax for 18.5% of Book Profit
Corporates (whether
resident or non-
resident) except the
province of Ontario
where Corporate
Minimum tax of 4% is
income.
Amount of tax Amount of tax exceeding
exceeding regular regular liability is allowed as
liability is allowed as credit and can be carried
credit and can be forward for 15 years
7 years
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A glimpse on some other Asian Countries

Country AMT System
Malaysia A Labuan company carrying on a Labuan business activity
may elect to pay a fixed amount of Malaysian Ringgit(MYR)
20,000 or to be taxed at 3% of the audited accounting
profit
Mauritius Repealed with effect from 1 July 2015
Philippines A minimum corporate income tax (MCIT) equal to 2% of
gross income is imposed on both domestic and resident
foreign corporations beginning in the fourth taxable year of
operations. Any excess of MCIT over the normal income tax
may be carried forward and credited against the normal
income tax for the following three taxable years.
Taiwan Tax residents in Taiwan with AMT taxable income of more
than NTD 6 million may be subject to a 20% AMT.

A profit-seeking enterprise with a fixed place of business or

business agent in Taiwan is subject to a separate AMT
calculation if it earns certain income that is tax exempt or
enjoys certain tax incentives and the enterprise's basic
income exceeds NTD 0.5 million. The AMT rate is 12%.
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Illustration to understand
AMT in USA

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 Particulars   Amount in $ 
(For single taxpayer, 2017) Example I Example II
Adjusted Gross Income after  1,00,000 1,40,000
deductions (A)
Specific tax preferences (B) 15,000 10,000
AMT Taxable Income (AMTI) (C =  1,15,000 1,50,000
A+B)
AMT exemptions
Exemption phase-out threshold  1,20,700 1,20,700 phase out at 25
(D) cents per dollar
Exemption amount (D) 54,300 54,300-7,325 = earned once AMTI
hits threshold.
46,975
Alternative Minimum Taxable  60,700 1,03,025 (1,50,000-
Income  (C – D) 1,20,700) x 25% =
Alternative Minimum Tax 26% x 60,700 = 26% x 1,03,025 7325

15,782 =26,787
Issues in Minimum tax
System across the globe

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Distorts taxpayers’
incentive decisions
other than work and
saving decisions

Targets people in the

upper-middle class,
not the uber-rich

Comply with two

different tax codes
making it complex and
burdensome

Indian IFSC is not

globally competitive
Minimum tax in India

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Prior to introduction of MAT 

Large number of companies showed

book profit

Claimed depreciation on Distributed huge

Plant and Machinery dividends

These companies didn’t pay any tax to the government

as they reported either nil or negative income under
provisions of the Income-Tax Act.
Applicability and Non-
Applicability

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 Corporate Non-Corporate
MATAssessees AMTAssessees

Applicable to every company

whether public or private and
whether Indian or foreign
excluding specified non-
resident companies

Applicable to every non-

corporate taxpayer who has
claimed (i) deduction under
section 80H to 80RRB (except
80P), (ii) deduction under
section 35AD and (iii) deduction
under section 10AA
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Applicability of MAT to
Foreign Companies

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Applicability of MAT provisions in case of foreign companies
had been a subject matter of litigation for long.

Finance Act 2015 inserted new clause (fb) and (iid) to

Explanation 1 wherein adjustments were provided with
respect to the capital gains from securities and interest,
royalty and FTS. These provisions were made applicable
w.e.f. 01-04-2016.

This resulted in an ambiguity as to whether MAT provisions

were implicitly applicable on foreign companies even prior to
the amendment by Finance Act 2015.

Finance Bill 2016 clarified that the MAT provisions shall not be
applicable to a foreign company with retrospective effect from
01-04-2001 subject to the condition that the foreign company
is a resident of country with which India has a DTAA and the
foreign company does not have a PE in India in accordance
with the provisions of such DTAA or the foreign company is not
required to be registered under any law for the time being in
force relating to the companies.

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MAT/AMT Credit vis-à-vis
Foreign tax Credit

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 Foreign Tax Credit (FTC) rules vide Notification No. 54 of
June 2016 dated July 27, 2016, which came into effect from 1
2016 April 2017. Rule 128 of the Income-tax Rules, 1962
deals with the manner of computation of FTC

Budget A new proposal in line with Rule 128 had been introduced
2017 to restrict the carry forward of MAT/AMT credit
• To carry forward the difference between the
tax paid under MAT/AMT and the tax
computed under the normal provisions as
Till AY 2017-18 credit for future years and be set off against
tax payable under normal provisions

• MAT/AMT credit will not be allowed to be

From AY 2018- carried forward to the extent that the

amount of FTC that can be claimed against
MAT/AMT exceeds the amount of FTC that is
19 onwards claimable against tax computed under the
normal provisions

Rule 128(7) provides that when FTC against MAT/AMT liability exceeds FTC
against tax payable under normal provisions, such excess would be ignored
while computing credit under section 115JAA or section 115JD
Illustration to understand
MAT credit vis-à-vis
Foreign Tax credit

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Example I: A Ltd. has earned income from Singapore on which tax has been
withheld in Singapore to the extent of INR 50,000. This is exempt under Section
10AA of Income Tax Act, 1961. However, tax as per MAT comes to INR 1,00,000.

Example II: Considering that everything else remains same, let us assume that
the above income is dividend income and tax as per Income Tax Act, 1961
comes to INR 50,000
    Amount in INR
  Example I Example II
Particulars Before AY From AY Before AY From AY
2018-19 2018-19 2018-19 2018-19
Tax under Normal Provisions  Nil Nil 50,000 50,000
(A)
Tax under MAT (B) 1,00,000 1,00,000 1,00,000 1,00,000
Tax withheld in Foreign  50,000 50,000 50,000 50,000
Country
Tax liability for the year  1,00,000 1,00,000 1,00,000 1,00,000
(Higher of A or B)
FTC utilized against MAT  50,000 50,000 50,000 50,000
liability (C)
FTC against tax payable  Nil Nil 50,000 50,000
under normal provisions (D)

MAT credit allowed as per  1,00,000 50,000 50,000 50,000

section 115JAA
(B-A) [(B-A) – (C- (B-A) [(B-A) – (C-
D)] D)]
Concluding Thoughts

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Rich

Target The reality

Source- http://www.taxguru.net
Thank You
Shiv Chhatwani
WRO-0533356
Ahmedabad

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