Authorities scraps the retroactive tax law

To resolve the retroactive tax disputes with companies like Cairn Energy and Vodafone, Finance Minister Nirmala Sithraman tabled a bill on Thursday in the Lok Sabha to remove retrospective taxation of capital gains from the sale of assets in India by foreign-registered companies.

The bill proposes to amend the Income Tax Act 1961 and the Finance Act 2012 to provide that tax claims based on the 2012 retrospective amendment will be collected for any indirect transfer of Indian assets if the transaction occurs before May 28, 2012 was carried out is considered to be “never passed or made”. It was on May 28, 2012 when the 2012 Finance Act received the approval of the President.

Driver without tax claim

Today’s draft law also stipulates that no tax claims will be levied in the future for transactions made before May 28, 2012 and that the claim that has already been levied will be “waived” with certain conditions. The drivers are: the company concerned must withdraw lawsuits and the government will refund the amount paid in these cases without interest. Another change is that the matter will be closed after the affected company withdraws the case.

Awards against India

That law comes at a time when a French court ordered the freezing of certain Indian government properties in the Cairn Energy case after the company alleged that India was paying the price paid by the arbitration tribunal in The Hague on April 21, according to the ruling, India pays Cairn $ 1,232.8 million plus interest and $ 22.38 million in arbitration and legal fees. India has appealed.

Before that, another prize went to India in the Vodafone edition. The government has also appealed against this to the Singapore High Court.

In these and 15 other cases, the tax claim was confirmed by the amendments to the Finance Act of 2012.

“In recent years, major reforms have been initiated in the financial and infrastructure sectors that have created a positive environment for investment in the country.

“This retrospective clarification change and the resulting requirement in some cases is still a sore point for potential investors,” says the draft law.

A senior official told BusinessLine that the government is “grabbing the bull by the horns”. When asked if this bill had come under pressure, he said: “We are a sovereign and you (Cairn) are a company. If things continue like this, it will be a protracted struggle … That is why companies are also privately talking to the government about an agreement. “

Amit Maheshwari, Tax Partner at AKM Global, described this as a major development and said it shouldn’t have lasted nine years. With this, the government pays no interest on reimbursement fees and other costs, which in some high profile cases like Cairn would be hundreds of millions of dollars. Overall, this will build taxpayer confidence and help India continue to attract record FDI, ”he said.

Be pragmatic

Aravind Srivatsan, tax officer at Nangia Andersen, believes the action shows a number of things, including the government’s willingness to reverse a long-term non-negotiable position, being pragmatic about business, and respecting the supreme court’s supremacy.

“Global boards of directors will no longer pick India for retro taxes, but will instead look at current trends such as the PLI program, the simplicity of doing business and advocate examining India for its intrinsic strengths and making a new pitch to make India much bigger make. “and an integral part of the global supply chain,” he said.