The Union government published a draft rule on Saturday which also contains preconditions for the withdrawal of controversial retroactive tax claims from aggrieved investors such as Cairn Energy Plc and Vodafone Plc, provided that they “irrevocably” withdraw all existing proceedings against the government and make a “commitment”, that you will not take any legal action to claim costs, damages or interest in the future.
The draft will be published by September 4th for suggestions and comments from all stakeholders. After the deadline, the rules will be finalized by incorporating relevant proposals to operationalize the Taxation Laws (Amendment) Act 2021, passed during the monsoons session of Parliament earlier this month, an official from the Treasury Department said, asking for anonymity.
The bill was passed to amend “a clarifying amendment” tabled by the Congress-led United Progressive Alliance (UPA) government in 2012 that was controversial for its retrospective application. The retrospective change had resulted in 17 chaotic litigation disputes, including two arbitrations cited by Vodafone Plc and Cairn Energy Plc in foreign courts. India lost both last year.
“In order to implement the change made by the 2021 Act, draft regulations for the amendment of the income tax regulations of 1962 were drawn up, which specify the conditions to be met and the procedure to be followed to implement the change made by the 2021 Act.” The Ministry of Finance said in a statement with.
The law was amended to “create tax security and ensure that once certain conditions are met, the pending income tax procedure is withdrawn, any claims canceled and the amount collected to taxpayers without interest,” it said.
Vodafone and Cairn did not respond to an email request asking for comments on this development.
The controversial change was made about nine years ago. The change came after the Supreme Court ruled in 2012 that profits from indirect transfers of Indian assets are non-taxable under the existing provisions of the Income Tax Act.
“The idea is that a sovereign government has the right to levy taxes, but applying it retrospectively has created a lot of dissatisfaction,” Treasury Minister Nirmala Sitharaman told the Rajya Sabha on August 9 during a discussion on the law.
The draft law was introduced to the Lok Sabha on August 5th and passed the next day. The move is widely seen as investor-friendly and also ends messy litigation and arbitration, particularly with Cairn, where the company has claimed India’s foreign assets.
The law calls for amending the 1961 IT Law and 2012 Finance Law, which were amended during the tenure of then-Finance Minister Pranab Mukherjee, to introduce the retroactive tax law that has stood for all the bad in India’s tax regime since then.
Ritesh Kumar S, Executive Director of IndusLaw, said: “The government’s approach to drafting the Rulebook seems to stem from the two arbitral awards secured by Vodafone and Cairn respectively. The exemption from the attachment of assets to enforce the order appears to be due in particular to Cairn’s experience. “
In July of this year, Cairn was successful in its application to the French court Tribunal Judiciaire de Paris to freeze residential properties of the Indian government in central Paris (through judicial mortgages).
To date, the London-listed Cairn haunts the Indian government in multiple jurisdictions, with a primary focus on regions with high quality assets such as the US, UK, Canada, Singapore, Mauritius and the Netherlands.