Finance Minister Nirmala Sitharaman presented a bill to parliament on Thursday to repeal the provision in the Income Tax Act to end the controversial retrospective tax bill that has long struck the trust of foreign investors, including Vodafone and Cairn.
The government has also proposed reimbursement of the amount paid by companies in litigation without interest. Treasury Secretary TV Somanathan told Business Standard that the total for all cases is approximately Rs.8,100 billion, of which approximately Rs.7,900 billion is related to the Cairn dispute.
The bill would withdraw the retrospective changes to the Income Tax Act that had made demands on Vodafone, Cairn and a few others, suggesting that foreign investment will be attracted.
This came shortly after Aditya Birla Group’s chairman Kumar Mangalam Birla offered to transfer the group’s ownership of Vodafone Idea to the government in order to prevent the collapse of the cashier-tied telecommunications company. Vodafone plc has claimed not to throw good money after bad.
Sitharaman said the country is at a point where a quick economic recovery is the order of the day. Foreign investment would play an important role in promoting faster economic growth and employment, she added.
“It is argued that such retrospective changes are against the principle of tax security and damage India’s reputation as an attractive travel destination,” read the statement on the objectives and rationale of the bill.
“There is Vodafone with 45 billion rupees and WNS Capital with around 48 billion rupees. There are also some recoveries from another company, but that company has already come under the Vivad se Vishwas program, “he said. In Vodafone’s case, the total tax claim (including interest and fines) was Rs 22,000 billion, but the government is Consideration of Rs 45 crore spent by Telecom on legal fees, etc. Vodafone won the case in the international arbitration court appealed against by the Government of India last year.
ALSO READ: The Checkered Past of After Tax: Everything You Need to Know
LOSE BATTLE
-
India’s imposition of tax on Vodafone has violated an investment treaty between India and the Netherlands, an international arbitration tribunal ruled last year
-
Cairn was awarded more than $ 1.2 billion in damages by the Hague Permanent Court of Arbitration in December on the tax refund case
-
A French tribunal last month ordered around 20 Indian government properties to be frozen as part of a guarantee for the amount that the cairn will receive. was owed
“The withdrawal of the 2012 retrospective law on indirect transfers of downstream assets in India is a welcome development. “said Fereshte Sethna, Counsel of Vodafone Group Plc
The bill will amend the Income-Tax Act 1961 so that, based on the aforementioned retrospective amendment, no future tax claims will be made on indirect transfers of Indian assets if the transaction was made before May 28, 2012, the date on which the 2012 Finance Act received the approval of the President, according to the statement of the aims and reasons of the legislation.
“It is also proposed that provision should be made for those who are to be paid before 28, with the result that no claim for costs, damages, interest, etc.
Somanathan said the government had been looking for a method that would uphold the principle of Indian tax law, but was not interested in pursuing something that we have not considered to be good policy since 2014. “
Nick Read, CEO of Vodafone Group, said in a July 23 analyst meeting that Vi is navigating difficult times and while the group is providing “practical support” it will not invest any new equity.
The Vodafone case dates back to the telecommunications company’s acquisition of the Indian assets of Hutchison Essar in 2007. The demand amounted to 22,100 billion rupees. The government appealed the Singapore judgment. Similarly, last year India lost a case before an international arbitration tribunal in The Hague regarding the taxation of Cairn Energy Plc and Cairn UK Holdings Ltd on alleged capital gains the company made when it reorganized its business in 2006 prior to the listing of the local entity.
The tribunal had asked India to pay Cairn an arbitration award of $ 1232.8 million plus interest and $ 22.38 million in arbitration and legal fees. The government appealed earlier this year to revoke the award.
ALSO READ: Investors can breathe a sigh of relief, no more subsequent taxation
Somnathan said Cairn must follow the procedure under the new law. “I think it now makes immediate sense for everyone involved in all of these disputes to withdraw cases as we have achieved a very reasonable solution to this problem. But achieved through Indian sovereign action,” he said.
Experts praised the government’s move. “This will remove a lot of uncertainty, but it shouldn’t have taken nine years,” said Amit Maheshwari, tax partner at Ashok Maheshwari & Associates.
Somnathan said the bill had been in the works for a long time. The draft took time, he emphasized. Pranav Sayta, EY’s tax partner, said the development recognizes the importance of security in tax laws, which is a key factor in building confidence in India as an attractive investment destination.
Tax expert Mahesh Bhutani said it was a major change that covers Vodafone and Cairn situations that have been or are being litigated. The question of the taxation of gains on the transfer of assets located in India by the transfer of shares in a foreign company has been the subject of protracted litigation. Finally, in 2012 the Supreme Court ruled that profits from the indirect transfer of Indian assets are not taxable under the existing provisions of the Income Tax Act.
The UPA government at the time retroactively amended the provisions of the Income Tax Act of 1961 through the Finance Act of 2012 to clarify that gains on the sale of shares in a foreign company are taxable in India if those shares, directly or indirectly, derive its value essentially from the assets located in India.