Multinational companies face tax notices in India

The Income Tax Department of India has sent notices to over a dozen multinational companies, seeking additional tax on fees for corporate guarantees from foreign parent companies. This could raise the tax rate from 10% to 35% plus surcharges. The tax demands relate to payments made for guarantees on loans taken by Indian subsidiaries between FY19 and FY23. The department argues these fees should be classified as income from other sources, not interest income. This scrutiny follows a May 2024 court ruling involving Johnson Matthey, which upheld the classification of guarantee fees as taxable income. The situation has raised concerns among international companies about the implications for corporate financing structures.