Taking a firm position on amending the income-tax (IT) Act retrospectively to tax deals like Vodafone, India has told the United States that companies making capital gains from assets located in India will have to pay taxes either in the country of their origin or in India.
It has been the finance ministry’s stand for some time now that India is not a tax haven and companies making capital gains here will have to either pay taxes.
US treasury secretary Timothy Geithner in a meeting with finance minister Pranab Mukherjee in Washington raised the issue of amendments proposed in finance bill to amend the income tax (IT) act retroactively to tax foreign transactions involving Indian assets.
“In this regard, the finance minister, Mr Pranab Mukherjee, informed the tax changes proposed are not substantive but clarificatory in nature as the changes reiterated only the intent of the legislation,” said a statement issued by the finance ministry.
However, Mr Mukherjee said that Indian tax laws are very clear that companies making capital gains from the assets located in India will have to pay taxes either in the country of their origin or in India.
“It is not a case of double taxation but ensuring that companies that are liable to pay tax must pay some tax,” said the statement.
American trade and lobby groups had asked Mr Geithner to raise the issue.
A proposed amendment in Finance Bill 2012, when approved, would bring overseas deals such as Vodafone's purchase of Hutchison under tax net and the UK-based telecom firm would be liable to pay Rs11000 crore tax for its acquisition of Hutchison’s stake in Hutchison Essar Ltd in 2007.
Vodafone had earlier won the tax dispute case in the Supreme Court which held that the company was not liable to pay Rs11,000 crore stemming from its 2007 acquisition of Hutchison’s stake in Hutchison-Essar.
The amendment is to bring such deals including that of Vodafone in under the tax net.
Vodafone has already threatened to take India to international arbitration if it didn’t take back the proposed amendment.
However, to assure investors Mr Mukherjee pointed out that as per law no tax case can be opened beyond six years.
“India informed that tax cases which have already been assessed and finalised up to April 1, 2012 cannot be reopened,” said the statement.
Mr Mukherjee also told Mr Geithner that relations between two countries has deepened and grown across a broad range of areas.
On the issue of categorisation of software sales as royalties, “it was informed that discussions have been held in the past between the tax authorities in both the countries and they had agreed to disagree on such characterisation.”