Pranab's message to MNCs: India no tax haven

Finance minister Pranab Mukherjee on Tuesday offered no relief to British telecom major Vodafone on its five-year-old tax dispute with the Indian government, making it clear there was no rethink on the proposal to allow authorities to tax older corporate deals.

The remarks are seen as a message that the government is unlikely to budge from its position to clamp down on deals that are structured to evade taxes by creating a web of subsidiaries registered in offshore tax havens.

“There cannot be a situation that somebody will make money on an asset located in India and will not pay tax either in India or to the country of its origin,” Mukherjee said in his reply during the Finance Bill debate in the Lok Sabha. The bill was passed by a voice vote.

Vodafone had in January won a Rs 11,200-crore tax battle after the Supreme Court ruled it was not liable to pay any taxes under prevailing laws. The finance ministry then proposed in the budget to impose a retrospective provision for tax on some types of international mergers.

The government expects to collect Rs 35,000-40,000 crore by taxing older corporate deals.

“We are not in that desperate a situation that a country of 120 crore people will be treated as a tax haven like Cayman Islands, Isle of Man or Virgin Island,” Mukherjee said.

On the court’s verdict, he said: “The Supreme Court may interpret law, but Parliament equally has the legislative right to express its intention by making amendment to correct the judgment.”

The UK and US have cautioned that the tax proposal could dent India’s image as an investment hotspot.