India told the US on Thursday that the proposed changes in the laws to tax overseas corporate deals retrospectively — the Vodafone case — were not “substantive but clarificatory” in nature.
“(And) the changes reiterated only the intent of the legislation,” finance minister Pranab Mukherjee told US secretary of state Timothy Geithner at a bilateral meeting.
Geithner has been under pressure from US businesses to raise the issue with Mukherjee, with the US chamber of commerce and US India Business Council writing to him earlier in the week.
US businesses have said that foreign investors will be driven away by the proposed tax.
The Indian government and Vodafone have been engaged in a five-year $ 2.2-billion tax dispute over the company acquiring a mobile operator in India from its Hong Kong-based owners. After losing in the Supreme Court, the government had proposed to change the 50-year-law. Vodafone has said that it was seeking international arbitration to end the dispute.
“In this regard, the Secretary noted that certain tax provisions in India’s fiscal year 2013 budget have raised significant concern amongst US industry and dampened enthusiasm about India’s investment climate,” Treasury spokeswoman Kara Alaimo told Reuters.
“The finance minister Shri Mukherjee informed (Geithner) that the tax changes proposed are not substantive but clarificatory in nature as the changes reiterated only the intent of the legislation,” a statement issued by the finance ministry’s visting delegation said.
Cases that have been assessed and finalised up till April 1, 2012 cannot be reopened, said Mukherjee, adding, that the central government was very clear that companies making capital gains from assets located in India mus pay taxes either in their country of 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” the statement quoted Mukherjee as saying.