The finance ministry has set up a 12-member advisory group headed by the revenue secretary on the proposed amendments to the Income Tax Act that seek to empower the government to tax corporate deals with retrospective effect.
“The group can have consultations on emerging issues of taxation in the area of international taxation and transfer pricing. The group can also advice the government about legislative amendments and administrative measures, which can help reduce tax litigation and bring in more tax certainty,” the terms of reference of the committee said.
The group will have representatives from industry chambers, besides government officials.
In Budget 2012-13, finance minister Pranab Mukherjee has introduced a retrospective provision in the finance bill that would empower the government to scrutinise corporate transactions from 1962.
The move is a direct fallout of the recent Supreme Court judgment which ruled that British telecom giant Vodafone wasn’t liable to pay $2 billion (Rs 11,200 crore) in taxes for a transaction that it inked in 2007 to acquire majority stake in mobile phone operator Hutchison Essar. A Cayman Islands-registered arm of Hutchison received the payment from Vodafone.
The I-T department’s argument was that the Cayman Islands transaction was essentially a transfer of an Indian asset and therefore Vodafone should have deducted tax at source when it paid Hutchison for the deal.
The government has maintained that there are several cases of laws being applicable retrospectively. There are also several instances where retrospective amendments have been made in other countries, such as China the United States, the United Kingdom and Germany and many other countries in Europe.
According to the government sources, cases such as Vodafone are not a case of allocation of taxing rights between two jurisdictions.
These are cases of “double non-taxation.” The government’s view is that India shall not allow to let go its taxing right only because the investor chooses to create multiple structure to hide the real transaction, in order to avoid payment of tax in any jurisdiction.
The government has maintained that there is no question of reopening old cases. In exceptional cases, where any case has escaped attention of the tax administration, they can be reopened only for the past six years.