Authorities Cancels Reverse Tax; presents invoice to amend the Earnings Tax Act

Finance Minister Nirmala Sitharaman presented the tax law (amendment) in the Lok Sabha today.

“The bill proposes to 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 is made before 28th 2012 (i.e. the date on which the Finance Act Received the approval of the president in 2012) “, it said in a statement by the Treasury.

“It is also proposed to provide that the effect of the 28 before 28 that no claim for costs, damages, interest, etc. can be asserted. It is also proposed that the amount paid be refunded interest-free in these cases, “said the government.

“The draft law also proposes to amend the Finance Act 2012 to provide that the validation of the claim etc. pursuant to Section 119 of the Finance Act 2012 no longer applies to the withdrawal of a pending litigation and the submission of a A promise that no costs, damages, interest, etc.

“In recent years, major reforms have been initiated in the financial and infrastructure sectors that have created a positive environment for investment in the country. However, this retrospective clarification and the related demand that has arisen in some cases remains a sore point. ”With potential investors. The country is now at a point where rapid economic recovery from the COVID-19 pandemic is the order of the day and foreign investment plays an important role in promoting faster economic growth and employment, “the government said .

This bill affects reverse tax cases from at least two large companies – Cairn Energy Plc and Vodafone Group of UK. Both firms had won international arbitrations against the collection of retroactive taxes.

The proposal comes amid Indian arbitration, Cairn Energy, in which UK oil and gas energy seeks to reclaim $ 1.2 billion from New Delhi. However, the government said Monday it had not received a formal proposal from them to resolve the issue within the country’s legal framework.

Later that day, Cairn Energy issued a statement saying it was monitoring the situation.

“We noted the introduction of the Taxation Laws (Amendment) Bill 2021 in the Indian Parliament, which proposes certain changes to the retroactive taxation measures introduced by the Finance Act 2012. We are monitoring the situation and will do another update in due course, “a statement said.

Finance Minister TV Somanathan said overall 8,100 crore was raised using the retroactive tax law. Of this, 7,900 crore came from Cairn Energy alone. This money is paid back.

“The government’s policy since 2014 has been that we do not support retroactive taxation. We must also remember that India will have to invest a lot during this time. These were inheritance disputes that went back before 2014,” said Somanathan.

He said the government had defended India’s sovereign right to taxes in an arbitration proceeding and awaited the logical conclusion of the cases. “So it was a trade-off between the principle of sovereign tax law and the relief of taxpayers.”

Finance Minister Tarun Bajaj said, “After getting some results in an arbitration, we have taken this bold move to reassure the investing community about the predictability of the tax system.”

Retroactive taxation continues to be a sore point and so the government has voluntarily decided to introduce this bill to repeal all retrospective tax claims, he said.

“You cannot question India’s sovereign tax law, but in principle we will not pursue any retroactive taxation procedures 8,000 crore (which was collected through this back tax) but the government’s intention not to believe in back tax, ”he said.

Ved Jain, former President of ICAI, said this would settle the arbitration issue.

“The full amount of tax must be refunded, but without interest, as a special no-interest provision has been added on such a refund under Section 244A. A claim made before May 28, 2012 will be rejected in 17 cases, including two cases where there is a stay. Commitment to be made by these entities that no claims, damages, interest, etc. will be asserted, “he said.

Deloitte India partner Neeru Ahuja said the bill was a welcome move.

“The amendment misrepresents what was done many years ago. It will now go away. Many disputes that repeat on indirect transfers are now being resolved and litigation will be resolved with the introduction of this law. It is a win-win situation for both.” Business and government. This is a big step towards greater security. This will increase investor confidence, “said Ahuja.

“This is a big development and it will certainly remove a lot of uncertainty,” said Amit Maheshwari, tax partner at AKM Global, a tax and advisory firm.

“This is a very pragmatic move by the government indeed and should help contain the widespread litigation in similar cases to Vodafone and Cairn. A worthy battle to be lost, “said Kumarmanglam Vijay, partner, J Sagar Associates.

“This move will help restore India’s global reputation and put an end to unnecessary litigation,” said Abhishek Soni, Co-Founder and CEO of Tax2win.

The government’s statement went on to say: “The issue of taxation of gains on the transfer of assets in India by the transfer of shares in a foreign company (hereinafter referred to as the“ Indirect Transfer of Indian Assets ”) has been a 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 law. “

After the Supreme Court ruled in 2012 that the Vodafone Group’s interpretation of the Income-Tax Act of 1961 was correct and that it did not have to pay taxes on the share purchase, Finance Minister Pranab Mukherjee circumvented the ruling with a proposal to amend the Finance Act, which the IT -Department gave the authority to tax such transactions retrospectively. The law was passed by parliament this year and the tax burden fell back on Vodafone.

What is retroactive tax?

The UPA government decided to retroactively impose capital gains tax on some companies, such as Cairn and telecommunications provider Vodafone Plc.

India’s retrospective tax was introduced in 2012 and made all capital gains from the transfer of shares of a foreign company whose assets were resident in India taxable from 1962.

An international arbitration tribunal in The Hague ruled last year that India’s imposition of tax liability on Vodafone, as well as interest and penalties, violated an investment treaty agreement between India and the Netherlands.

Click here to read the full text of the law.

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