As India looks to axe the retrospective tax provisions many companies including Vodafone and Cairn have reached out to their tax advisors to seek clarity around the government’s stand before taking a call on whether to withdraw challenges and claims.
The companies want clarity on how the law will work and whether it will impact other prospective litigation and tax demands arising mainly due to the indirect transfer of shares issue.
They also are seeking clarity on the timeline of the refunds that the government has promised.
After major embarrassment on the international front, the Indian government has finally moved to scrap the retrospective aspect of the law that taxes indirect transfer of assets.
The government has promised that it will refund taxes already collected and withdraw all litigation and arbitration if companies toe the government line and give an undertaking that they will withdraw litigation at all forums, will forgo any damages or interest or other costs.
“Apart from Vodafone and Cairn, there are matters pending in the case of domestic taxpayers which need resolution. Another set of issues relates to the prospective application of the 2012 amendment. We have issues relating to step-up of costs where the provisions are applied and other related matters; an expeditious resolution of these will send a strong positive message to foreign investors,” said Dinesh Kanabar, CEO, Dhruva Advisors, a tax advisory firm.
Tax experts said after 2012, on several matters, the tax department slapped additional domestic taxes on several companies caught for indirect transfer of shares.
These additional tax demands were emanating from the fact that an indirect transfer of share transaction had taken place.
Companies want clarity as to whether such litigation and tax demand will also be bundled along with the withdrawal of retrospective tax amendment.
In 2006, Hutchison Telecommunication International Limited transferred shares of its Cayman Island subsidiary to Vodafone International Holding.
As a result of this transaction Vodafone ended up owning a majority stake — 67% — in the Indian telecom major Hutchison Essar.
Most of Hutchinson’s valuation was derived from its Indian assets and customers. Indian taxman in 2007, asked the company to pay domestic taxes on the transactions. The controversy finally reached the Supreme Court that ruled that the transaction was not taxable.
An email questionnaire sent to Vodafone, Cairn and WNS did not elicit any response.
The companies want clarity on how the law will work and whether it will impact other prospective litigation and tax demands arising mainly due to the indirect transfer of shares issue.
They also are seeking clarity on the timeline of the refunds that the government has promised.
After major embarrassment on the international front, the Indian government has finally moved to scrap the retrospective aspect of the law that taxes indirect transfer of assets.
The government has promised that it will refund taxes already collected and withdraw all litigation and arbitration if companies toe the government line and give an undertaking that they will withdraw litigation at all forums, will forgo any damages or interest or other costs.
“Apart from Vodafone and Cairn, there are matters pending in the case of domestic taxpayers which need resolution. Another set of issues relates to the prospective application of the 2012 amendment. We have issues relating to step-up of costs where the provisions are applied and other related matters; an expeditious resolution of these will send a strong positive message to foreign investors,” said Dinesh Kanabar, CEO, Dhruva Advisors, a tax advisory firm.
Tax experts said after 2012, on several matters, the tax department slapped additional domestic taxes on several companies caught for indirect transfer of shares.
These additional tax demands were emanating from the fact that an indirect transfer of share transaction had taken place.
Companies want clarity as to whether such litigation and tax demand will also be bundled along with the withdrawal of retrospective tax amendment.
In 2006, Hutchison Telecommunication International Limited transferred shares of its Cayman Island subsidiary to Vodafone International Holding.
As a result of this transaction Vodafone ended up owning a majority stake — 67% — in the Indian telecom major Hutchison Essar.
Most of Hutchinson’s valuation was derived from its Indian assets and customers. Indian taxman in 2007, asked the company to pay domestic taxes on the transactions. The controversy finally reached the Supreme Court that ruled that the transaction was not taxable.
An email questionnaire sent to Vodafone, Cairn and WNS did not elicit any response.
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